Recapitalisation: Analysts Worry Over Transfer of Costs to Bank Customers, Job Cuts

James Emejo in Abuja

Analysts have expressed concerns over the possible transfer of costs that may be incurred by banks in the ongoing consolidation exercise ordered by the Central Bank of Nigeria (CBN). 

 They also worry that the recapitalisation exercise could lead to loss of jobs.

On March 28, 2024, the apex bank announced new minimum capital requirements of N500 billion and N200 billion for commercial banks with international and national authorisation respectively, as well as a new capital base of N50 billion for banks with regional licenses.

The apex bank further pegged the new minimum capital for merchant banks at N50 billion, while non-interest banks with national and regional authorisations are mandated to raise their capital thresholds to N20 billion and N10 billion, respectively. The financial institutions have till 2026 to comply with the new capital requirements.

The recapitalisation plan was to enhance banks’ resilience, solvency, and capacity to continue supporting the growth of the Nigerian economy among others.

However, in an exclusive interview with THISDAY, President, Association of Capital Market Academics of Nigeria, Prof. Uche Uwaleke, said it was important for the regulatory authority to ensure that the costs of recapitalisation are not transferred to bank customers.

He said banks will incur some costs in the process of recapitalisation whether through the stock market or Merger and Acquisition (M&A).

According to him, these costs would include fees paid to Issuing Houses, Securities and Exchange Commission (SEC), Nigerian Exchange, Reporting Accountants, Solicitors and other professionals associated with securities issuance, adding that professional fees are equally required in the case of M&A.

Uwaleke explained that these transactions also have tax implications.

He told THISDAY, “Banks will be inclined to transfer these costs to their customers by way of higher charges or loan costs if the CBN does not undertake to assist in one way or the other.

“In 2005, the CBN reached an agreement with the SEC, the NSE, FIRS to ensure that these costs are reduced and not only provided technical assistance to banks in aid of consolidation but also defrayed the cost of professional services incurred by banks.”

Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, however said he believed there are currently regulations in place to checkmate excessive charges from banks.

On the new capital thresholds, he said, “I believe it is the right move by the CBN. I have always been of the opinion that despite the size of the Nigerian economy, our banks do not have the capacity to really drive the economy to exponential growth.

“This is despite the fact that they are some of the most profitable institutions on the continent and have consistently made profits during numerous economic downturns in Nigeria.  However, as of December 2022 figures, no Nigerian bank features in the top 10 largest banks in Africa based on tier 1 capital.

“The Naira devaluation will likely see Nigerian banks drop even further in 2023 numbers. The implications of this are that there are certain transaction ticket sizes that are beyond the capacity of Nigerian banks to fund even with syndication.”

Shelleng said, “This is why there has been an over reliance on DFI funding such as the African Development Bank, Afreximbank, IFC among others for infrastructural and other developmental projects.

“The Nigerian economy is vastly untapped, and without strong, well capitalised financial institutions, it will be tough to grow the economy beyond its current limitations.”

On his part, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, however, said it was unlikely that any costs would be passed over to consumers given the funding prescriptions by the central bank.

He told THISDAY, “The additional funding will come from different investors whose sources will be verified by CBN to ensure they don’t borrow to invest in equity.

“The major cost to be borne is the one to be paid to capital market asset management institutions that will help banks achieve their capital targets.

“However, many staff of the banks will lose their jobs due to consolidation, as many functions will be duplicated. There may be conflicts arising from disagreement among different board members.”

Ekechukwu said the industry was overdue for capital raise given that the depreciation of the Naira eroded the value of the capital base of Nigeria banks.

He said, “The asset size of the Standard Bank Group of South Africa at $170 billion is more than the total asset size of all Nigerian Deposit Money banks at $140 billion. Again, no Nigerian bank is ranked first to 10th in size of both Assets and Capital base in Africa.

“The foregoing answers the question of whether the new capital regime of banks is justified. It will enable Nigerian banks to expand their capacity and business frontiers to grow our economy.”