Recapitalisation: Tier 3 banks in Nigeria likely to adopt M&A activity and licence downgrades – Fitch

In a report released on Wednesday, Fitch highlighted that while first- and second-tier banks have made significant progress in raising fresh capital, third-tier banks have been slower in their recapitalisation efforts, making consolidation or licence downgrades a more probable route to compliance.

The report read, “M&A activity and licence downgrades remain more likely among third-tier banks.” 

In March 2024, the CBN introduced a significant hike in paid-in capital requirements—comprising share capital and share premium—for all commercial, merchant, and non-interest banks.

The move was aimed at bolstering financial stability and ensuring Nigerian banks have adequate buffers to withstand macroeconomic shocks.

To comply, banks have three options: fresh equity injections, mergers and acquisitions, or downgrading their licences.

According to Fitch, while major banks are leveraging shareholder support and capital markets to raise new funds, third-tier banks are struggling to attract the necessary capital inflows.

Fitch warned that without swift capital-raising action, these banks may have to resort to mergers and acquisitions or consider downgrading their banking licences to meet regulatory expectations.

Contrasting with the struggles of third-tier banks, the report highlighted that leading commercial banks have made substantial progress in their recapitalisation efforts.

Access Bank and Zenith Bank have already secured enough capital to meet the N500 billion threshold required for international banking licences. Similarly, First HoldCo, United Bank for Africa (UBA), and Guaranty Trust Holding Company are implementing phased capital-raising strategies, with some awaiting regulatory approval for their recent rights issues.

Fidelity Bank and FCMB Group, which belong to the second tier, have successfully completed initial rounds of capital-raising but will need to raise more to sustain their international banking licences.

Also, Fitch pointed out that Ecobank Nigeria and Jaiz Bank required only small capital injections to comply and have already achieved their targets. However, Ecobank Nigeria is still in breach of its 10 per cent CAR requirement and has further capital-raising plans to restore compliance.

Despite economic headwinds, investor sentiment has been largely positive for capital-raising efforts, ensuring that most top- and mid-tier banks have been able to raise funds successfully.