CBN Mandates Banks to Increase Capitalization or Risk Downgrade

By Iyojo Ameh

Amidst ongoing economic challenges facing the nation, the Central Bank of Nigeria (CBN) has issued a directive compelling major banks to fortify their capital reserves or face potential downgrade.

This directive particularly targets Tier 1 Banks, which include prominent institutions such as UBA, GTB, ACCESS Bank, First Bank, and ECO Bank.

In response to the prevailing macroeconomic difficulties, the CBN has stipulated that banks with International Banking licenses must raise their authorized capital base to N500 billion.

This represents a significant increase from previous levels, which ranged between N115,815 million and N270,745 million. Importantly, the revised capital requirement comprises solely of paid-up capital and share premium, excluding shareholders’ funds.

Furthermore, banks operating with national licenses are now mandated to enhance their capital to N200 billion. This directive impacts banks like FCMB, Fidelity, and Stanbic IBTC. Similarly, institutions operating with Regional Licenses must augment their authorized capital to N50 billion.

The CBN’s directive also extends to merchant banks, which must maintain a minimum capital base of N50 billion for national licenses and N20 billion for non-interest banks. Regional license holders are required to maintain a minimum share capital of N10 billion.

According to Haruna Mustafa, Director of the CBN’s Financial Policy and Regulation Department, these measures are aimed at fostering a secure, robust, and stable banking system in alignment with existing legislative frameworks.

To comply with the directive, banks are presented with limited options, including injecting fresh equity capital through private placements, rights issues, or offers for subscription, engaging in mergers and acquisitions, or undertaking license authorization upgrades or downgrades.

With a two-year deadline set by the CBN to meet the new capital requirements, banking executives are gearing up for strategic planning and restructuring efforts to navigate these regulatory changes effectively.