•Advises against indiscriminate risk appetite
Dike Onwuamaeze
With the clock ticking on the recapitalisation deadline of March 31, 2026, given by the Central Bank of Nigeria (CBN) for banks to meet their respective regulatory capital requirements, Proshare Nigeria Limited, has estimated that 26 licenced banks that cut across all tiers would need to raise a minimum of N4.176 trillion to fill up the funding gap in their respective shareholders’ fund.
It also projected that post recapitalisation, the banking landscape would be characterised by larger tier-one banks.
The report, which was released by Proshare, a Lagos-based research and investment information provider, titled: “Nigeria Banking Recapitalisation: A Crucial Game, A Risky Gamble and A Lingering Gap,” also stated that the major lesson from the 2005 recapitalisation exercise was that banks should enhance their managerial competence and risk management capabilities to match the growth in bank capital base.
It stated: “With the clock ticking on the recapitalisation deadline of the CBN, analysts expect to see a banking landscape characterised by larger tier-one banks, the merger of a few second-tier banks and the outright acquisition of banks with no equity capital to talk about.”
It listed Ecobank, Keystone Bank Limited, Taj Bank and Lotus Bank as the only banks that already have enough shareholders’ fund to meet the latest capital base requirement.
The report added: “With the CBN insisting that banks bring fresh capital to meet the new minimum capital requirements, the sector would see a large inflow of fresh money, a possibility of mergers and acquisitions as Tier 3 and a few Tier 2 banks will likely be absorbed into larger entities, and the sector could possibly see the setting up of new banks with the revised minimum paid up capital.
“Banks in what Proshare classifies as Tier 3 or those currently with negative shareholders’ funds will be acquired rather than merged, as was seen during the Soludo’s consolidation era in 2005.”
The report stated that bank capital should combine individual bank operational reviews to ensure that prudential capital adequacy ratios (CARs) are met and CBN’s regulatory oversight to ensure that each bank satisfied the minimum requirements of the regulator’s capital stress test).
It warned: “Being over capitalised is just as dangerous as being under capitalised. This issue will be treated in Proshare’s forthcoming ‘Tier 1 Banking Sector Report titled ‘Recapitalisation: The Death of Banks, and the Resurrection of Banking.’
“With earnings per share (EPS) likely to fall, banks’ share prices will equally tumble. Financial analysts expect investors to take short (or profit-taking) positions as soon as bank Tier 1 equity increases over the next twenty-four months., as investors realise that bank equity increases come at a cost. “As occurred after the recapitalisation of banks in 2005, banks could go on a lending binge that jeopardises the financial system.
“With large equity positions, banks will look for loans and advances to absorb the additional capital. The consequences would be higher non-performing loan ratios (NPLRs) and higher loan-to deposit ratios (LDRs) as banks run up larger risk assets without accompanying growth in bank deposits and improved liquidity as the bank cash-to-deposits (C/D) ratio rises.”
It added: “A major lesson from 2005 is that managerial competence and risk management capabilities must match the growth in bank capital; otherwise, corporate governance would be thrown out of the window, and corporate performance would be smashed to the sidewalk.”
