Recapitalisation: Banks Require N4.1tn to bridge funding gaps, Says Afrinvest Report

•Says banking sector alone can’t achieve $1tn economy  

•Cardoso: capital injection not an ambush on industry, policy inclusive, well-thought out

James Emejo in Abuja

The banking industry in Nigeria would need N4.1 trillion (about $3 billion) to meet the new minimum capital requirements, a report by Afrinvest said yesterday.

The report also revealed that at the conclusion of the current banking consolidation, about $4.5 billion capital will be realised at current exchange rate, compared to the 2005 consolidation, when the banking industry capitalisation stood at over $7 billion. It emphasised the anaemic growth witnessed in the past years.

The report further stated that total capital realisable from the exercise was still far from what it would take to realise the desired $1 trillion economy, implying that banks alone cannot make it happen.

The revelations came as Governor of the Central bank of Nigeria (CBN), Mr. Olayemi Cardoso, clarified that the bank’s directive on review of minimum capital was not an ambush on the industry.

Cardoso spoke in Abuja at the launch of the 2024 Afrinvest Banking Sector Report, titled, “Bank Recapitalisation: Catalyst for $1 trillion Economy?”

The CBN governor’s clarification followed an insinuation by a panellist during the launch of the report.

Cardoso added that the entire country was carried along in making the pronouncement.

Chief Executive, Afrinvest Group, Dr. Ike Chioke, said at the event that the new capital raise posed new challenges for the industry in terms of achieving the $1 trillion economy.

Chioke said, “It’s not just the banks that will need to grow. Every other aspect of the economy needs to grow alongside it.”

He further estimated that the total gap for capital requirements by the seven international banks was about N1.3 trillion currently. They said they would need to raise an additional N2.2 trillion to reach N3.5 trillion ($1.6 billion at the current exchange rate).

Chioke also said, “If you look at the national banks, their gap is N1.6 trillion in additional capital to get them to N2.2 trillion. The regional banks, as a group, have a gap of N500 billion. The merchant banks have a much lower gap of just over N200 billion.

“Whereas the non-interest banks today are reasonably well capitalised, their gap is only N14 billion. Most of the non-interest banks, indeed, by the end of this year, their audited accounts will show they’ve met their capitalisation. So, there’s nothing to worry there.

“But if you put the whole industry together, you’ll see that you’re looking at something like a N4.1 trillion funding gap for the entire industry. And that’s a huge task for today’s money. And that’s an additional $3 billion that the entire industry is looking for.”

He said at current levels of recapitalisation, “We’re still very far away from where we want to be. And that just underscores the challenge of the sort of anaemic growth that the economy of Nigeria has suffered over the last two decades, from 2004 to where we are now in 2024.”

The report further stated that mergers and acquisitions were likely to happen, though none had occurred yet.

Chioke said, “We have not seen anybody trying to do any mergers and acquisitions. But the evidence of the M&A that was done in the past doesn’t paint a very rosy picture for some of those M&A transactions.

“And the last but not the least, the license downgrade or upgrade. Well, that’s a very challenging one. But today we have quite a number of offers in the market.”

However, Cardoso clarified that the bank’s directive on minimum capital was not an ambush, as insinuated by a panellist at the launch.

Represented by CBN acting Director, Financial Policy and Regulations Department, Mr. Simon Onoja, the CBN governor said, “We don’t just come and announce a policy, we give notice. And then I think the banking sector is also aware that this was announced much earlier.

“And so, when we came out in March this year to actually bring out the guidelines, it was not a surprise at all to the banking industry. And that is why a lot of them have coped with the plans, even before the announcement was made, and, finally, before the guidelines were released.

“Many of them have already organised themselves to plan on how to raise their capital. But again, the current team of CBN came with very clear objectives and priorities.

It is to achieve monetary and price stability, to achieve a stable exchange rate, to control inflation, create an enabling environment for businesses and individuals, adopt measures to tackle institutional deficiencies, restore corporate governance, strengthen regulations, and implement prudential guidelines and policies. It is also to promote sustainable and inclusive economic growth.”

Cardoso said, “After taking stock of the different activities and initiatives in the CBN, the current team introduced various policy initiatives to strengthen the banking system and enhance its capacity to serve the region’s larger economy.

“In this regard, an important policy initiative, which is the banking sector recapitalisation exercise, was made.

It requires all commercial, merchant, and non-interest banks operating in the country to increase their paid-in capital to levels considered suitable for their license categories and authorisations.

“And a period of 12-24 months was given to actualise these objectives. Banks have different options, as we all know, to meet these requirements.”

Further expatiating on the report, the Afrinvest chief executive said, “When you come to Nigeria, you see agriculture, but our agriculture is subsistence agriculture. It’s not gotten to that industrial level yet. We have manufacturing and trading and ICT, but we haven’t still gotten that momentum in terms of employment.

“Today, we can see all sorts of challenges for the effects of decades of mismanagement and misalignment of policies. You can see Turkey, it’s a much stronger economy and a much more diverse environment. These are some of the issues that we’re talking about.

“When you now think of how Nigeria got to that $1 trillion economy, yes, it’s important to recapitalise the banking sector, but it’s very critical that we shouldn’t forget the other components of the economy that must come along.”

Chioke added, “Human capital is critical. We need to continue to focus on that in education, in healthcare, incentivising investment. Indeed, one would say that Nigeria’s biggest hidden assets are human capital. Today, even with the limited but increasing flow of Foreign Direct Investment, I also see statistics to show that the remittances from Nigeria’s diaspora is thickening.”