Nigerian banks posted bumper profits in 2024 against the backdrop of a fresh recapitalisation exercise and regulatory shocks such as board/management dissolutions and license revocations, writes OLUWAKEMI ABIMBOLA
The buzz at the venue of the 58th Annual Bankers’ Dinner in 2023 was palpable when the Governor of the Central Bank of Nigeria, Olayemi Cardoso, announced that banks were going to be required to raise fresh capital in the New Year to drive the $1tn economy target of President Bola Tinubu.
Expectedly, the agenda for 2024 for the banking sector was set as stakeholders positioned to raise additional funds and those who were already raising funds patted themselves on the back for being proactive.
All that remained was to find out the new capital thresholds for the different categories of licenses. The banking community didn’t have to wait for too long as, in late March 2024, the CBN announced the new capital requirements, the components of the capital base, the options that the banks had to raise the additional funds, and the timeframe available to them.
The CBN, in a circular to commercial, merchant, and non-interest banks and promoters of new banks, announced the review of the capital requirements for the operations of the affected categories of banks.
Citing both domestic and global shocks, the apex bank, in a statement signed by its Acting Director, Corporate Communications, Sidi Ali, said it had become necessary to raise the capital base of the banks.
Thus, the CBN directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn, while those with regional authorisation are expected to achieve a N50bn capital floor. Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20bn and N10bn, respectively.
According to the CBN circular, only the share capital and share premium items on the Shareholder Fund portion of the balance sheet will be recognised in this particular round of recapitalisation.
The apex bank circular read, “For existing banks, a. The minimum capital specified above shall comprise paid-up capital and share premium only. For the avoidance of doubt, the new capital requirement shall NOT be based on the shareholders’ fund. b. Additional Tier 1 Capital shall not be eligible for the purpose of meeting the new requirement. c. All banks are required to meet the minimum capital requirement within a period of 24 months commencing from April 1, 2024, and terminating on March 31, 2026. d. Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio requirement applicable to their license authorisation. e. In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularise their position.”
At the time, an analysis by The PUNCH put the fresh capital to be raised by 26 banks, including commercial banks, merchant banks, and non-interest banks, at about N4tn in the next 24 months.
Fitch Ratings projected that the increased capital requirements would spur equity issuance over the next two years.
“Some small and medium-sized banks may struggle to raise the necessary capital, leading to increased M&A. This would result in a more concentrated banking sector, with higher barriers to entry, greater economies of scale, and stronger long-term profitability,” the London-based rating agency stated.
So far, only the merger of Unity Bank and Providus Bank has come to light, being approved by the CBN with the condition of a N700bn loan from the apex bank to aid the new banking entity.
CBN stated that the financial support was necessary to “strengthen the stability of Nigeria’s financial system and avoid potential systemic risks.”
Since the recapitalisation exercises started, banks have raised about N1.7tn from the capital market.
According to the Securities and Exchange Commission, banks have raised N1.7tn since the fresh recapitalisation exercise started.
The Director-General of SEC, Dr. Emomotimi Agama, disclosed this at the last Chartered Institute of Stockbrokers Conference held in Ibadan, disclosing that about N1.68tn has been raised by banks through e-offering.
This was facilitated by the NGX’s E-offering platform—NGX Invest.
Some of the banks that have raised funds in the past year include Fidelity Bank, Zenith Bank, Sterling Financial Holding Company, FCMB Group, Guaranty Trust Holding, and Access Holdings. They used a combination of rights issues and public offers.
Both FBN Holdings and United Bank for Africa just concluded their rights issues, while Stanbic IBTC Holdings is set to come to the market.
As of year-end, only two of these banks have announced details of share allotment following the completion of the share verification process by the Central Bank.
Access Holdings raised N351bn from its rights issue of 17,772,612,811 ordinary shares of 50 Kobo each at N19.75 Kobo per share.
With this achievement, the banking subsidiary of the Holdco, Access Bank Plc, has become the first bank to meet the CBN’s N500bn minimum capital requirements for banks with international authorisation well ahead of the March 2026 regulatory deadline.
Access Bank’s share capital now stands at N600bn, which is N100bn above the regulatory minimum requirement.
FCMB Group, which announced its share allotment on December 29, said that the share verification process was completed on December 10.
A total of N147.51bn was raised and verified by the regulatory authorities, and N144.56bn was absorbed through the issuance of 19,802,710,781 ordinary shares at N7.30 per share, bringing the total post-offer issued shares to 39,605,421,562 shares.
The CBN also approved the additional N75bn capital raised by Sterling Financial HoldCo to meet its new capital threshold. The N75bn was raised through a private placement in September 2024.
The slow pace of the share verification process by the CBN has been a source of concern to market watchers, who pointed out that the long process of share verification could make other banks avoid the market and seek alternative means of raising the desired capital.
Investment banker Tajudeen Olayinka said, “It is unlikely that all the banks will approach the market for capital raising, judging from the consequences of the delayed allotment process that all the banks that already approached the market were made to suffer. It was unhealthy to keep the offer process on for more than three weeks after the closure of the application list. This was what CBN’s capital verification exercise introduced to the offer process, thereby creating more capital-raising hurdles for banks willing to raise money from the market to meet CBN’s deadline for capital raising.”
The stockbroker maintained that CBN should have approached the verification exercise more cautiously and efficiently, saying, “This long delay in the offer process is capable of creating investors’ apathy for new public offerings, especially from banks that are yet to test the market. Foreign portfolio investors do not have this kind of patience. Therefore, we are likely to see more mergers and acquisitions going forward.”
Chief Executive Officer of Cowry Treasurers Limited, Charles Sanni, highlighting the need for speed, said, “I think the CBN will need to step up the capital verification. They may need to commit more resources towards this exercise. The delay is causing investors apathy and rethinking. Some investors have opined that if they had bought shares from the secondary market, those shares would probably qualify for dividends for the 2023 year-end. It could also have been possible to use them as collateral for loans for business activities.
“For the banks, the cash is not available on time for the purpose of working capital. The banks may consider other options for capital raise in subsequent times.”
With 2025 being the full year dedicated to recapitalisation and more banks expected to come to the market or enter the market again, in the case of FCMB Group and Sterling Financial HoldCo, it will continue to be a topical issue in the banking sector, even long past the March 2026 deadline.
– bumper profits –
Amid the recapitalisation, the consistent and sustained hike in the monetary policy rate has seen six banks rake in about N4.15tn in the nine months of 2024.
The lenders—Zenith Bank Plc, Guaranty Trust Holding Company Plc, Access Holdings Plc, United Bank for Africa Plc, FBN Holdings Plc, and Ecobank Transnational Incorporated—as of the third quarter recorded a profit before tax worth N4.15tn, which is more than 100 per cent higher than 1.97tn for the same period in the previous year.
Expectedly, their profit after tax also rose considerably to N3.91tn as of September, a growth of 104 per cent compared with the total of N1.92tn in the previous year.
From its first meeting in February 2024, the Monetary Policy Committee of the CBN has consistently hiked the benchmark rate in a bid to tackle inflation and ensure price stability.
In November, the MPC raised the benchmark interest rate by 25 basis points to 27.50 per cent. This marked the sixth consecutive increase in 2024.
The real sector has been hard hit by these rate hikes as it contracted until the festive season provided some respite, as reported by the Purchasing Manager Index of Stanbic IBTC Bank on Thursday.
In December, the headline PMI moved back above the 50.0 no-change mark for the first time in six months. At 52.7, the index was up from 49.6 in November and signalled a solid improvement in the health of the private sector, which was the most pronounced since January 2024.
As the real sector contracted, the banks had been smiling… literally.
To even out the gains, the Federal Government introduced plans to implement a windfall tax targeting banks’ foreign exchange transaction profit for the period from June 2023 to December 2023.
This proposal was embedded in the revised 2023 Finance Bill, submitted to the National Assembly on July 17. Lawmakers increased the tax rate to 70 per cent and extended its duration to 2025, providing banks with the option to settle the tax in installments.
This development had come on the heels of an earlier directive from the CBN, which barred banks from paying dividends from their foreign currency gains.
-New sheriff in town-
While recapitalisation has remained a topical issue in the sector, some regulatory moves have also ruffled some feathers and made players realise there was a new leadership at the apex bank.
In the first month of 2024, the CBN sacked the boards and management of three lenders for non-compliance with banking regulations and corporate governance failures.
The affected banks are privately held Union Bank, Keystone Bank, and Polaris Bank, all of which had come under government control in the past.
The circular announcing the development partly read, “This action became necessary due to the noncompliance of these banks and their respective boards with the provisions of Section 12(c), (f), (g), (h) of the Banks and Other Financial Institutions Act, 2020. The banks’ infractions vary from regulatory non-compliance, corporate governance failure, and disregarding the conditions under which their licenses were granted to involvement in activities that pose a threat to financial stability, among others.
“The CBN assures the public of the safety and security of depositors’ funds and remains resolute in fulfilling its mandate to uphold a safe, sound, and robust financial system in Nigeria. Our banking system remains strong and resilient.”
Less than 24 hours after sacking the board and management of the banks, CBN appointed new executive directors to oversee the affairs of the deposit money banks.
According to the statement, Yetunde Oni, the first female Chief Executive Officer of the Standard Chartered Bank in Sierra Leone, was appointed as the Managing Director/Chief Executive Officer of Union Bank, while Mannir Ubali Ringim was selected as the Executive Director of the bank.
For Keystone Bank, Hassan Imam was appointed as its Chief Executive Officer, while Chioma Mang got the position of Executive Director, and CBN appointed Lawal Akintola as the Chief Executive Officer of Polaris Bank and Chris Ofikulu as its Executive Director.
In June, CBN announced the revocation of the license of Heritage Bank and appointed the Nigeria Deposit Insurance Corporation as its liquidator.
It was a move that had notified that the new leadership of the CBN was willing to let a bank fail.
In announcing the revocation of the license of the bank, the acting Director of Corporate Communications at CBN, Sidi Ali said, “This action has become necessary due to the bank’s breach of Section 12 (1) of BOFIA, 2020. The board and management of the bank have not been able to improve the bank’s financial performance, a situation that constitutes a threat to financial stability. This follows a period during which the CBN engaged with the bank and prescribed various supervisory steps intended to stem the decline. Regrettably, the bank has continued to suffer and has no reasonable prospects of recovery, thereby making the revocation of the license the next necessary step.
“Consequently, the CBN has taken this action to strengthen public confidence in the banking system and ensure that the soundness of our financial system is not impaired.”
-Outlook-
As the banking sector gets into the full recapitalisation year, analysts at Afrinvest said that for 2025, the banking sector’s performance will be a benchmark for broader economic growth, with implications for financial inclusion, credit access, and sectoral diversification beyond oil.
It added that given the past recapitalisation exercise, there may be mergers and acquisitions as well as job losses.
“Bank recapitalisation comes with trade-offs. Consolidation, reminiscent of the 2005 reforms that reduced Nigeria’s banks from 89 to 26, may lead to mergers, acquisitions, and potentially significant job losses. For employees and smaller banks, 2025 could be a year of adaptation or attrition. We are optimistic this would lead to a more resilient banking industry. Nonetheless, continued FX and inflation pressure could undermine the USD valuation of the capital base at the end of the exercise,” the analysts said.