Banks Seek CBN’s Clarification On Retained Earnings As Race Towards Recapitalisation Begins Today

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Commercial banks across the country have requested that the Central Bank of Nigeria (CBN) give clear directives on how to handle retained earnings in the recapitalisation of banks. This request came as implementation commences in a few weeks.

According to the banks, the recapitalisation exercise is expected to commence from April 1, 2024 (today), through March 31, 2026.

International investment and research company, Afrinvest West Africa Limited, adding its voice to the request, in an email note to investors, said, “Assuming the re-engineering of retained earnings to bolster eligible capital levels (that is share capital and share premium as defined by the CBN for the recapitalisation exercise), our estimation indicates that approximately N901.8 billion combined would be needed by Wema Bank, First City MB, Fidelity, Unity, and Sterling banks to reach new benchmarks.”

The CBN had recently, announced the upward review of the minimum capital requirement for lenders in the country to mitigate the impact of external and domestic shocks via negative exchange rate movement and elevated inflation.

The apex bank mandated minimum capital of N500 billion, N200 billion, and N50 billion for Commercial Banks with International, National, and Regional licenses respectively.

Likewise, the CBN also raised capitalisation baseline for Merchant Banks (N50 billion) and Non-interest Banks (National: N20 billion and Regional: N10 billion).

The CBN specified that minimum capital for existing banks should comprise only paid-up capital and share premiums. For proposed banks (new banking license applications after April 1, 2024) the paid-up capital should meet new standards.

They explained that from initial assessment, positives from the recapitalisation drive include strengthening the capacity of banks to support credit creation in the real sector, the potential influx of capital into the domestic economy through offshore capital-raising endeavours and the likelihood of the emergence of stronger and more resilient banking entities post-recapitalization.

However, potential headwinds can materialise in the form of the dilution of returns for shareholders, the risk of lenders inadvertently generating bad risk assets or engaging in high-risk behaviours to deploy additional liquidity, and the possibility of high industry concentration following consolidations, leading to oligopolistic influence.

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