The Central Bank of Nigeria (CBN) has recently introduced new capital thresholds for Nigerian banks, requiring international, national, and regional banks to maintain minimum share capital of N500 billion, N200 billion, and N50 billion, respectively.
However, the CBN’s decision to exclude retained earnings from the share capital calculation has sparked criticism from bankers.
Retained earnings, which represent profits not distributed as dividends but reinvested in the bank, are traditionally considered a component of a company’s equity. Many bankers argue that excluding retained earnings from share capital calculations fails to acknowledge their true value and goes against conventional accounting principles.
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Despite the CBN’s preference for banks to retain earnings to bolster their capital base, bankers believe these earnings should still be recognized as part of their capital. They point out that the ten largest banks in Nigeria collectively hold N4.2 trillion in retained earnings, and excluding these from share capital calculations could lead to unnecessary capital raising for many banks.
The CBN’s directive appears to prioritize direct capital injections into banks over recognizing retained earnings as part of share capital. While the CBN has allowed for mergers and acquisitions to meet the new capital requirements, bankers remain dissatisfied, suggesting that some banks may struggle to comply with the new guidelines.
The CBN has defended its stance, stating that stronger banks with substantial capital bases are crucial for providing significant levels of credit, which is essential for driving national economic growth. This move aligns with the CBN’s goal of supporting the achievement of a US$1 trillion economy by 2030, in line with the Renewed Hope agenda of the Tinubu administration.