Nigeria: Lenders Race To Meet New Capital Targets

Lenders have begun raising additional capital to meet new targets set by the Central Bank of Nigeria, which has given them two years from last month to attain the new standards. In some cases, this will mean raising capital by about 10 times over current minimums.

The new requirements are to ensure banks have a robust capital base to absorb unexpected losses and the capacity to contribute to the growth and development in Nigeria, the central bank said, after the government set a goal of a $1 trillion economy by 2030.

Bigger banks with larger capital bases and capacity “can underwrite larger levels of credit, which is critical to lubricate and catalyze the economy’s growth,” it said.

The regulator set the new capital base for commercial banks with international licenses at 500 billion naira (up from 50 billion, or $36.5 million) while the requirement for national and regional lenders went up to 200 billion and 50 billion naira, respectively (from 25 billion and 10 billion). Non-interest lenders’ capital was raised to 20 billion naira, and 10 billion naira for regional licenses (from five billion).

Options for meeting the requirements include injecting fresh capital through private placements, rights issues and/or offers for subscription; mergers and acquisitions; and/or upgrades or downgrades of license authorization. Additional Tier 1 capital will not be eligible, the central bank said.

Recapitalization is “a necessary evil in an economy experiencing exchange-rate volatility and high inflation,” says Damilare Asimiyu, macroeconomic strategist and head of research at Lagos-based Afrinvest Consulting. The naira has fallen from 129 to the US dollar 2005, when Nigerian banks last raised the capital bases, to more than 1,100 to the dollar currently, slashing value of banks’ assets. All the Tier 1 lenders will likely scale through, Asimiyu predicts. Lenders in this group are known collectively by the acronym FUGAZ, for First Bank, United Bank for Africa (UBA), Guaranty Trust, Access, and Zenith. “They will raise the funds cleanly.” Among the Tier 2 banks, he expects to see consolidation. Some of the FUGAZ group have already begun making their moves. UBA has announced it will seek shareholders’ permission on the 24th of this month to raise fresh capital through rights issues and private placements. Zenith’s shareholders were slated to meet on May 8th to authorize it to raise capital in the Nigerian or international capital markets, the bank said in a statement. Guaranty’s board has proposed raising $750 million through public offerings and private placements.