Recapitalisation: Zenith, Access, Other Banks That Have Moved to Raise Capital Ahead of CBN Deadline
- The CBN recently announced an increase in the capital requirement for banks
- In light of this, big Nigerian banks are planning to raise over N2 trillion in domestic and foreign capital
- Tier 2 banks have also shared their plans to raise the new capital requirements using various strategies
Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.
Large banks have sprung into action to fulfil the Central Bank of Nigeria's (CBN) new capital criteria. Four tier-one institutions aim to raise over N2 trillion in domestic and foreign capital.
Source: UGC
To meet the CBN's ten-fold increase in minimum capital requirements, Zenith Bank Plc, the largest bank by market value, Access Bank, FBN Holdings, and Guaranty Trust Holding Company (GTCO) recently announced plans to raise extra capital.
Experts have hailed the move by the CBN, saying that the capital increase is long overdue.
Samuel oyekanmi, a research and insight associate with Norrenberger Financial Group said,
"The move to increase banks' minimum capital requirement is not a bad idea, considering that it would have significant growth impact on the banking industry as a result of more investments, which could come in form of foreign direct investments or investments from the domestic front."
Zenith bank
Zenith Bank filed a proposal with the Nigerian Exchange Limited (NGX) on Friday, asking to double its issued share capital to 31.396 billion shares.
The extra shares might bring in N630 billion at the current market price of N40 per share.
However, the shares will likely be issued for a rights issue at a discount.
Based on retained earnings, the CBN calculated that Zenith has a current capital base of N270.7 billion. This indicates that the bank is looking to raise N229.3 billion.
Access Holding
Before the official revelation by the CBN on March 28, Access Holdings Plc, the parent company of Nigeria's largest bank by assets, was the first to disclose preparations for capital raising.
In its full-year 2023 results, Access Holdings reported a total share capital of N2.1 trillion, more than four times the new capital minimum. However, this figure includes retained earnings, which the CBN stated will not be considered for this computation.
The bank has an N248 billion difference between its share capital and the new CBN requirement. The bank intends to raise N365 billion through a rights offering.
GTCO
The parent company of GTBank, GTCO, intends to raise $750 million in capital next month (May 9) by asking shareholders for their permission.
According to FMDQ Securities currency, which determines currency rates, GTCO aims for N856.5 billion at the closing rate of N1,142 per USD on Friday.
The present capital base of GTBank, after deducting retained earnings, is N138.2 billion. As a result, the bank needs N361.8 billion in fresh funding.
FBN Holdings
For its part, FBN Holdings plans to ask shareholders for permission this month to raise N300 billion through a private or public share sale in Nigeria or elsewhere.
At a meeting scheduled for April 30, the holding company—which owns First Bank, one of Nigeria's premier lenders—said it would request authorisation from shareholders to raise the money.
With retained earnings subtracted, First Bank's capital base is N251.3 billion, leaving it with a N248.7 billion shortfall to close.
The big banks have favoured the rights issue to raise capital, although analysts worry that this could dilute shareholder value.
A rights issue occurs when a business allows current shareholders to purchase additional shares at a discounted rate.
The country's banking sector has 24 months to raise the approximately N3 trillion needed to meet the minimum capital standards that the central bank declared last month.
Small banks face M&A
The route to the new capital requirement for certain small and medium-sized banks is to either merge with another bank or be acquired by a larger bank.
After raising N40 billion through a rights sale, Tier-2 Wema Bank stated that it is awaiting regulatory approval.
According to Moruf Oseni, MD of the bank, the bank will make sure to start raising the necessary capital as soon as feasible and will quicken its capital management strategies.
With the help of Sterling Investment Management SPV Plc, N21 billion was recently raised by Sterling Bank Limited as part of its N30 billion debt issuance program.
“Some small and medium-sized banks may struggle to raise the necessary capital and could be acquired by larger banks,” analysts at global ratings agency Fitch said in a note to clients.
“Certain domestic systemically important banks have particularly high capital ratios but are significantly below the new paid-in capital requirements, and may prefer to consider acquisitions over seeking fresh capital injections.”
Fitch said.
The report says only 17 out of 24 banks will survive
Legit.ng reported that a new report from Ernst and Young, a United Kingdom-based accounting firm, says 17 out of 24 banks in Nigeria will meet the capital requirement from the Central Bank of Nigeria (CBN) if raised 15 times from its current N25 billion.
The report says options available to banks outside CBN requirements include mergers and outright acquisitions.
The report acknowledged the financial soundness of the banks, which shows that Nigerian banks are safe and resilient as of 2023.
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Source: Legit.ng
