A recent report has raised concerns that 17 out of 24 banks in Nigeria might fail to meet the Central Bank of Nigeria’s (CBN) capital requirement if it is increased by 15-fold from its current N25 billion.
The report delves into the potential outcomes for banks that might fall short of the CBN’s capital requirements, highlighting the likelihood of mergers and acquisitions (M&A) as seen during the last recapitalization exercise in 2004/2005, which reduced the number of banks from 89 to 25.
While acknowledging the overall financial soundness of Nigerian banks as of 2023, the report suggests that the recent devaluation of the naira, with the exchange rate now exceeding N1400/$ compared to N132.9/$ in 2005, has eroded the value of the N25 billion capital base.
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This devaluation has led to a significant drop in the capital base when converted to dollars, from $188.2 million in 2005 to a mere $18.4 million currently.
The CBN Governor has indicated that the planned recapitalization aims to support Nigeria’s target of achieving a $1 trillion economy, despite the relative stability of the banking sector in recent years.
This report comes on the heels of the CBN Governor’s suggestion in November 2023 to raise the minimum capital requirement for banks, citing the need for banks to have sufficient capital to support the country’s economic goals.
