CBN may tell some banks to raise capital base to help achieve N1tr economy
By Jeph Ajobaju, Chief Copy Editor
Banks with international banking licence may be asked to raise their capital base to over N900 billion by the Central Bank of Nigeria (CBN), according to a new report by CardinalStone, a non-bank securities trade firm.
The report came a few months after the CBN governor Yemi Cardoso announced the apex bank would ask banks to raise more capital in order to support the government’s vision to grow the economy to $1 trillion.
The report by CardinalStone, titled Banking Sector FY 2024 Outlook, speculated regional banks may be required to boost their capital base to N181.85 billion and banks with international licences to N909.27 billion.
A section of the report, titled “Nigerian banks: On the cusp of a new dawn”, based the projection on the prospects of the CBN returning to the dollar ratios of capital bases-to-GDP set in 2005, CardinalStone explained.
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Decline from 2005 capital base
CardinalStone said these ratios range from 0.04 per cent for regional banks to 0.22 per cent for other banks but to achieve a $1 trillion economy in seven years may necessitate a higher capital base, per The PUNCH.
The report cited a substantial decline from the recapitalisation exercise in 2005, as the requirements which ranged from 0.04 per cent to 0.22 per cent of the GDP in dollar terms at the time have dropped to a range of 0.00 per cent to 0.01 per cent of the GDP in dollar terms in 2024.
“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, the report added.
“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.
“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.”