Banks eye Eurobonds, foreign investors for N4tn fresh capital

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Twelve banks will be unable to utilise about N4.8tn in retained earnings in their coffers to strengthen their capital base in line with the new Central Bank of Nigeria directive to raise capital.

This came as officials of commercial and merchant banks are eyeing Eurobonds and private placements from foreign investors as race for the bank sector recapitalisation race fathers momentum.

The CBN had in a new circular to commercial, merchant and non-interest banks and promoters of new banks on Thursday announced the review of the capital requirements for the operations of the affected categories of banks in the country.

Citing both domestic and global shocks, the apex bank in a statement signed by its Acting Director, Corporate Communications, Sidi Ali, said it had become necessary to raise the capital base of the banks.

Thus, the CBN directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn while those with regional authorisation are expected to achieve a N50bn capital floor.  Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20bn and N10bn, respectively.

The CBN’s move came two days after the Monetary Policy Committee hinted that it would change the capital base of the banks.

According to the CBN circular, only the share capital and share premium items on the Shareholder Fund portion of the balance sheet will be recognised in this particular round of recapitalisation.

The apex bank circular said, “For Existing Banks a. The minimum capital specified above shall comprise paid-up capital and share premium only. For the avoidance of doubt, the new capital requirement shall NOT be based on Shareholders’ Fund. b. Additional Tier 1 Capital shall not be eligible for the purpose of meeting the new requirement. c. All banks are required to meet the minimum capital requirement within a period of 24 months commencing from April 1, 2024 and terminating on March 31, 2026. d. Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio requirement applicable to their license authorization. e. In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularize their position.”

For proposed banks, the CBN said that their minimum capital requirement shall be paid-up capital and applicable to all new applications for banking licences submitted after April 1. 2024.

It added that for proposed banks whose applications it is processing, CBN, said “It shall continue to process all pending applications for banking licence for which capital deposit had been made and/or Approval-in-Principle had been granted. However, the promoters of such proposed banks shall make up the difference between the capital deposited with the CBN and the new capital requirement not later than March 31, 2026.”

Usually, the shareholders’ fund segment of the balance sheet consists of share capital, share premium, Additional Tier 1 capital, retained earnings, other components of equity.

The According had earlier reported that about 26 banks including commercial banks, merchant banks and non-interest banks would need to raise about N4tn in the next 24 months to meet the new capital base required by the CBN.

Findings by The According have shown that 12 financial institutions, including Access Holdings, FBN Holdings, FCMB Group, Fidelity Bank Plc, Stanbic IBTC, Zenith Bank Plc, United Bank for Africa, Sterling Financial Holdings, Guaranty Trust Holding Company Plc, Wema Bank, Polaris Bank and non-interest bank, Jaiz Bank have N4.8tn in retained earnings, which they will be unable to touch due to the CBN directive.

According to Investopedia, retained earnings are the cumulative net profits of a company after accounting for dividend payments. It captures the fact that because those earnings were not paid out to shareholders as dividends, they were instead retained by the company.

This is according to their financial reports filed with the Nigerian Exchange Limited.  The audited results of Access Holdings for 2023 showed that its retained earnings had risen to N715.13bn from N408.70bn in the previous year.

FBN Holdings’ retained earnings stood at N675.12bn from N397.71bn in 2022. FCMB Group saw its retained earnings grow by almost a 100 per cent to N148.99bn from N74.56bn. Fidelity Bank’s rose to N119.43bn from N44.88bn, Stanbic IBTC Bank’s reserves moved to N390.32bn from N290.30bn as of December 2023.

Zenith Bank saw its retained income appreciate by 40.06 per cent to N893.90bn at the end of September 2023 from N638.22bn in the corresponding period in 2022. UBA’s retained earnings rose by 74.79 per cent to N750.81bn from N429.53bn as of December 2022.

Sterling Financial Holdings in its condensed unaudited interim financial statements for the year ended December 2023 revealed its retained earnings grew to N55.79bn from N44.92bn. GTCO’s Q3 2023 retained earnings rose by 97.56 per cent to N424.49bn from N214.85bn.

Wema  Bank in its consolidated and separate financial statements for the period ended December, 2023 saw its retained earnings rise to  N30.37bn from N11.45bn.  According to Polaris Bank 2022 financial results, its retained earnings declined to N7.23bn from N12.99bn. Similarly, Jaiz Bank recorded a 75.58 per cent decline to N557.90m from N2.28bn in its retained earnings.

Based on the CBN’s recognition of only  share capital and share premium, over 26 banks capital base stood at N2.31tn, which is far behind the N6.28tn required by the banks, in line with the apex bank new capital base.

 To meet the requirement, the CBN gave the sector three options including issuance of new common shares (by way of public offer, rights issues, or private placements), Mergers and Acquisitions (M&As) and upgrade/downgrade of their respective license category or authorization.

The CBN said it would issue further guidelines to prescribe the definition, options and approaches to meeting the new minimum capital requirement.

In the wake of the CBN governor, Dr Olayemi Cardoso, announcing the planned recapitalization, The According gathered from top sources in the banking industry that the top executives were mulling various sources for raising the new capital.

According to officials, while some banks are eyeing merger and acquisition talks, a number of big lenders are eyeing some weaker ones for possible acquisition.

Some lenders are said to be mulling alliances that may result in mergers.

However, top banks officials said even though some Nigerian banks were already in the Eurobond market, a number of them are also planning to go raise additional capital via Eurobonds.

“Some lenders are looking at private placements via foreign investors,” a top bank executive, who spoke on condition of anonymity, said because he was not authorised to speak on the matter.

A bank CEO, who welcomed the CBN policy direction regarding the recapitalisation of the banks, said his institution was ready to raise fresh capital though it had yet to conclude the modality.

In the last few months, First Bank of Nigeria Holdings, Wema Bank and Jaiz Bank have proposed Rights Issues, while Fidelity Bank announced plans to raise additional capital via the issuance of 13,200 billion ordinary shares via public offer and rights issue.

Speaking on the development, stockbroker and financial analyst, Ambrose Omorude, said faulted the decision of the Central Bank of Nigeria to exclude other items in the Shareholders Fund from being recognised as part of the capital base of the bank. He said that it was not a global practice.

However, the Chairman, Senate Committee on Capital Market and Institutions, Senator Osita Izunaso, in a statement issued on the development hailed the apex’s decision as one that would boost the nation’s capital market.

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