Nigerian Banks seek private Investors to meet new capital requirements

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Nigerian banks are seeking to boost their capital base by reaching out to institutional and high-net-worth-individual private investors, as they strive to meet the new minimum capital requirements set by the Central Bank of Nigeria (CBN). According to sources, banks are engaging in discussions around private placements, with a focus on pre-arranged deals with investors.

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A chief executive of a bank stated, “The bank would combine private placement with other options to retain its international banking licence.” Another commercial bank is sourcing at least N50 billion from private placement to a pre-arranged investor, in addition to capital raising from existing shareholders.

Experts believe that the recourse to private investors is expected, given the timeline and the quantum of funds required to meet the new minimum capital requirements. Mr Olatunde Amolegbe, Managing Director of Arthur Steven Asset Management, said, “Selling to private investors brings a lot of benefits. Not only is it likely to attract better valuation for the banks’ shares, but these private investors also bring some strategic advantages in terms of expertise, knowledge and even, in some cases, technology transfer

Dr Femi Ademola, Managing Director of AIICO Capital, noted that private placement is preferred due to its simplicity and lower costs. He added, “Private placement is preferred most times because it is less complicated in terms of the required approval process, and it’s far less expensive.”

The CBN had in March 2024 released its circular on the review of the minimum capital requirement for commercial, merchant, and non-interest banks, with a 24-month timeline for compliance ending on March 31, 2026. The new minimum capital base for commercial banks with international affiliations is ₦500 billion, while commercial banks with national authorisation are ₦200 billion.

Market sources expect an uptick in recapitalisation activities in the early second half, as banks strive to meet the new minimum capital requirements. Under the new minimum capital base, the CBN uses a distinctive definition of the new minimum capital base for each category of banks as the addition of share capital and share premium, as opposed to the previous use of shareholders’ funds.

While most banks have shareholders’ funds in excess of the new minimum capital base, their share premium and share capital significantly fall short of the new minimum definition.

A review of financial results of quoted banks at the Nigerian Exchange (NGX) indicated that most banks still fall short of the new minimum capital base

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