In a move aimed at fortifying the Nigerian financial system, the Central Bank of Nigeria (CBN) has announced the unveiling of new minimum capital requirements for banks. The CBN has set the minimum capital base for commercial banks with international authorization at N500 billion. This development comes shortly after the apex bank urged Nigerian banks to expedite the recapitalization of their capital base.
The Acting Director of the Corporate Communications Department at the CBN, Mrs Sidi Ali, confirmed the new capital requirements in a statement released on Thursday. According to the statement, the minimum capital base for commercial banks with national authorization has been set at N200 billion, while the requirement for those with regional authorization is N50 billion.
Additionally, the new minimum capital requirement for merchant banks has been set at N50 billion. Non-interest banks with national and regional authorizations will now be required to maintain minimum capital of N20 billion and N10 billion, respectively.
The concept of capital base refers to the foundational level of funding utilized by individual investors, publicly traded companies, and banks. For individual investors, it represents the initial investment and subsequent purchases of securities. In the context of banks, a strong capital base is crucial for maintaining stability and solvency.
The CBN has issued a circular, signed by the Director of the Financial Policy and Regulation Department, Mr Haruna Mustafa, to all commercial, merchant, and non-interest banks, as well as promoters of proposed banks. The circular emphasizes that banks must meet the new minimum capital requirement within 24 months, starting from April 1, 2024, and ending on March 31, 2026.
Governor Olayemi Cardoso initially disclosed the CBN’s decision to introduce higher capital requirements during his address at the Annual Bankers’ Dinner in November 2023. This move aims to enhance the resilience, solvency, and capacity of banks to support the growth of the Nigerian economy.
To meet the new capital requirements, the CBN has encouraged banks to consider various options, including injecting fresh equity capital through private placements, rights issues, and/or offers for subscription. Other possibilities include mergers and acquisitions, as well as upgrading or downgrading license authorizations.
The circular further clarifies that the minimum capital shall consist of paid-up capital and share premium only, excluding Additional Tier 1 Capital. It emphasizes the need for banks to strictly comply with the minimum capital adequacy ratio requirement specified for their license authorization. Banks failing to meet the CAR requirement must inject fresh capital to rectify their position.
For proposed banks, the minimum capital requirement shall be in the form of paid-up capital. The new capital requirement will apply to all new applications for banking licenses submitted after April 1, 2024. However, the CBN will continue processing pending applications for banking licenses for which a capital deposit has been made or an Approval-in-Principle has been granted. Promoters of such proposed banks must fulfil the difference between the capital deposited and the new capital requirement by March 31, 2026.
All banks must submit an implementation plan, clearly outlining the chosen options for meeting the new capital requirement along with the associated activities and timelines, by April 30, 2024. The CBN will closely monitor and ensure compliance with the new requirements within the specified timeframe, thereby fostering a stronger and more resilient banking sector in Nigeria.
