Yesterday, CBN governor Cardoso released an important memo for Nigerian banks, and this memo has a lot of effect on the economy, the future of Nigerian banks, and their capacity to operate.
Walk with me as we explore this memo.
So this evening, the Central Bank of Nigeria, under the leadership of Cardoso, unveiled new minimum capital requirements for Nigerian banks.
Nigerian banks with international authorization must have a minimum capital base of ₦500 billion.
The CBN expects banks with a national spread to have a capital base of ₦200 billion.
The same CBN expects the smaller banks with a regional presence to have a capital base of 50 billion naora.
This is what it means.
When Chukwuuma Soludo, the current governor of Anambra State, served as the CBN governor in 2005, that was the last time banks were required to recapitalize.
He made it compulsory for banks at that time to have ₦25 billion as a capital base before they could continue to operate.
That news dealt a fatal blow to numerous banks that could not survive the tsunami.
Mergers and acquisitions swallowed up many banks.
Only 20 banks survived the storm and came out stronger.
It has been 19 years since banks raised their capital base.
A lot has changed since that time.
This recapitalization policy mandates that tier 1 banks, such as UBA, First Bank, Zenith, and Access, who have international exposure (international branches), must raise their working capital with CBN from ₦25 billion to ₦500 billion.
If they fail to do so, they will lose their licence.
For tier 2 banks like FCMB, Fidelity Bank, and Globus Bank, banks that only operate in Nigeria but have no international presence, they are expected to increase their working capital from ₦25 billion to ₦200 billion per bank; if they fail to do so, they lose their licence.
Aside from tier-one banks that have international exposure, we have tier-two banks that have branches all over the country but no branch outside the country, followed by regional banks that are tier 3.
We have 4 regional banks, and they are as follows:.
Providus bank
Sun Trust Bank
Parrelex bank
And Premium Trust Bank.
Regional banks are banks that operate in a specific region, like the southeast, southwest, etc.
These regional banks don’t have a national licence like Fidelity Bank to open branches all over the country.
They can only open branches in the regions where they have permission to operate.
As a regional bank, they must increase their own working capital from ₦25 billion to ₦50 billion.
At the moment, Nigeria has 25 banks.
For these banks to survive this thunderstorm from Cardoso, a lot of them will go into mergers and acquisitions with the bigger banks, who will swallow them.
Just like it was in 2005.
The banks that fall under the 3 licences—tier 1, tier 2, and regional licences—have from now until March 2026 to raise this money or close shop, so Nigerian banks were given ample time to raise the money or go burst.
For those who don’t want to go into merger and acquisition, they can go the way of raising more capital via debt or rights issues so as to dilute their shareholding for investors with cash to invest and come in to co-own the banks. .
The merit of this policy is that it will make Nigerian banks more resilient to finance and fund megaprojects.
Barth Nnaji raised the money and resources he used to build a geometric power plant in Aba from external sources like the IFC and Afriexim Bank because Nigerian banks do not have the capacity to fund mega projects.
He spent $800 million to build Geometric; no Nigerian bank has the capacity to do this, and that is what this new memo will solve.
Therefore, the new policy requiring banks to recapitalize to 500 billion from 25 billion naira will solve this problem.
For instance, to build a cement plant in Nigeria today, it costs $1 billion to do so.
So if I want to build a Visage cement factory, for instance, I don’t need to go to Afriexim or Africa Finace Corporation to raise the money.
The United Bank of Nigeria can comfortably fund it because they have the capital, so we are about to witness the birth of mega businesses in Nigeria, funded by Nigerian banks.
You get the point now.
The demerit is the attendant job loss that comes with mergers and acquisitions.
Most big banks that swallow the small ones will be forced to sack the staff inherited from the smaller banks that they don’t need in order to be more efficient and resilient.
In the coming months, weeks, and years, people’s children, fathers, and mothers will lose their jobs.
But by and large, the merit of this new policy for me outweighs the demerit.
I’m a big fan of Cardi B for so many reasons.
One of them is that he came prepared for the job, and he is very competent.
This is why he excites me a lot.
I can’t say the same for other appointees appointed by the same government who have nothing but a subpar
And for this and many more, Cardoso will be my man of the year for 2024, as he has shown working with what he has done since his appointment.
By Chukwudi Iwuchukwu
