Banks Merger, Acquisition Loom as CBN Raises Capital Requirements

Commercial banks in Nigeria may face a season of mergers and acquisition (M&A) to remain in business as the Central Bank of Nigeria (CBN) has has increased the minimum capital requirements for all banks operating in the country.

CBN’s Acting Director Corporate Communications Mrs Hakama Sidi-Ali made this announcement in a statement in Abuja.
The new minimum capital requirements for banks marks a turning point in the banking history.

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The banks are expected to play a significant role in the attainment of $1 trillion economy projected by the Bola Ahmed Tinubu administration.

The new minimum capital base for banks with international authorisation is pegged at N500 billion.

The minimum capital base for commercial banks with national authorisation has been raised to N200bn, an eightfold increase from the previous N25bn.

Banks with regional authorisation now require a minimum capital base of N50bn compared to the prior N10 billion.

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The minimum capital requirement for merchant banks has been set at N50 billion.
The new minimum capital for non-interest banks with national and regional authorisations are N20 billion and N10 billion respectively.

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The new requirements will come into effect on April 1, 2024 with a two-year window for compliance.
Banks are required to meet the minimum capital base by March 31, 2026.

The CBN has also outlined several strategies for banks to achieve this goal: banks can raise additional capital through private placements, rights issues or public offerings.

Consolidation through mergers and acquisitions (M&A) is another option for banks to meet the higher capital requirements.
Banks may choose to downgrade or upgrade their licenses to comply with the new capital requirements for their desired authorization level.

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The CBN emphasised that meeting the minimum capital requirement is not the sole focus.
Banks must also maintain the minimum capital adequacy ratio (CAR) mandated for their specific license authorization. Failure to comply with the CAR could result in mandatory capital injections to regularize the bank’s position.

The new minimum capital requirements apply not only to existing banks but also to all new applications for banking licenses submitted after April 1, 2024.

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The CBN said it will continue to process pending applications where capital deposits have already been made or an Approval-in-Principle (AIP) has been granted.

However, promoters of these proposed banks “will need to bridge the gap between their deposited capital and the new requirement by March 31, 2026”.

The CBN requires all banks to submit an implementation plan by April 30, 2024, outlining their chosen approach to meeting the new requirements and the timeline for each step. The CBN said it will monitor banks to ensure compliance with the new regulations within the specified timeframe.

The banking sector has experienced periods of prosperity and vulnerability. The consolidation exercise of 2004, which raised the minimum capital requirement to N25 billion, is considered a turning point.

However, with a growing economy and evolving financial landscape, concerns have grown regarding the adequacy of capital buffers held by Nigerian banks.

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