Nigerian Banks Face Potential Capital Hike: CBN May Eye N900bn Threshold

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A recent report issued by CardinalStone Securities casts a spotlight on the potential for a significant capital increase for Nigerian commercial banks, specifically those with international banking licenses. Titled “Nigerian banks: On the cusp of a new dawn,” the report projects that the Central Bank of Nigeria (CBN) may require these banks to boost their capital base to over N900 billion (approximately $2.1 billion).

This projection hinges on the possibility of the CBN revisiting the dollar ratios between capital bases and GDP that were established in 2005. These ratios currently range from 0.04% for regional banks to 0.22% for commercial banks. The report suggests that a return to these ratios, coupled with Nigeria’s projected economic growth towards a $1 trillion economy in seven years, could necessitate even higher capital requirements, surpassing the N900 billion estimate.

The report read in part, “Banks may be expected to boost capital base to between N181.85bn (for regional banks) and N909.27bn (for international banks), given 2024 real GDP of $472.6bn and exchange rate of N841.61/$ as at December 20, 2023.

“In this case, the majority of banks are likely to scale this hurdle, with some tier-1 banks even boasting capital bases above 2.1x of the threshold implied by this scenario analysis and with Zenith Bank at the peak.”

It added, “However, the ambitious target of reaching an economic size of $1tn in seven years may require an even higher range for capital base requirements. Tier-1 international banks like Zenith Bank and UBA are likely to surpass the implied thresholds.

“We will continue to monitor developments in this space to see what the apex bank eventually settles for as well as the structure of the directives and timelines.”

The CBN’s final decision on capital requirements for Nigerian banks will be eagerly awaited by financial institutions, investors, and the broader Nigerian economy. As the apex bank weighs various factors, understanding the potential implications of a capital hike becomes crucial for stakeholders to prepare and adapt to the evolving regulatory landscape.