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By Chinwendu Obienyi and Chukwuma Umeorah
Following the initiation of stringent vetting processes for share investments in banks by the Central Bank of Nigeria (CBN), Daily Sun at the weekend, gathered that this has sparked apprehension and uncertainty within the investment community, particularly among shareholders who are closely monitoring developments.
This is coming after the apex bank in a circular addressed to commercial, merchant, and non-interest banks, including promoters of proposed banks, on the new minimum capital requirements for banks, noted that this was in line with the apex bank’s intention to apply its robust anti-money laundering regulations vigorously owing to the prevailing macroeconomic challenges and headwinds occasioned by external and domestic shocks
The circular which was signed by Director, Financial Policy and Regulation Department at the CBN, Haruna Mustafa, stated that the bank will collaborate with relevant law enforcement agencies to ensure that the capital raised during the recapitalisation process is free from the taint of illegality.
Additionally, the circular addressed the vetting of new investors and significant shareholders whilst emphasizing the need to ensure that only individuals and entities meeting the ‘Fit and Proper’ criteria are allowed to significantly invest in or own shares in banks.
The CBN further identified the options available to banks for capital augmentation. These include the issuance of new common shares through public offers, rights issues, or private placements. Banks may also consider mergers and acquisitions or adjusting their license categories to comply with the new requirements.
The circular noted, “Banks may meet the new requirement through the following options: a. Issuance of new common shares (by way of public offer, rights issues, or private placements); b. Mergers and Acquisitions (M&As); or c. upgrade/downgrade of their respective license category or authorization.
The CBN will issue guidelines to prescribe the definition, options and approaches to meeting the new minimum capital requirement.”
Commenting on the circular, economic analysts stated that the implementation of these strict vetting processes signifies a significant shift in the regulatory landscape governing investment in Nigerian banks. However, shareholders, who spoke to Daily Sun, are particularly concerned about the potential impact this could have on their investments and the overall stability of the banking sector.
Daily Sun gathered that apart from investors being on the edge, some bankers voiced their displeasure towards the CBN’s decision to omit retained earnings from the share capital calculation in its recent recapitalization guidelines amid its new capital thresholds which requires international, national, and regional banks to maintain minimum share capital of N500 billion, N200 billion, and N50 billion, respectively.
According to the circular, “for existing banks, the capital requirements specified above shall be paid-in capital (Paid-up plus Share Premium) only. Bonus issues, other reserves and Additional Tier 1 (AT1 Capital shall not be allowed or recognized for the purpose of meeting the new minimum capital requirements”.
In accounting terms, retained earnings are considered a component of a company’s equity because they represent profits that have not been distributed as dividends but are instead reinvested in the bank.
Speaking to Daily Sun, a shareholder who requested anonymity, noted that as much as the apex bank’s circular calls for the strict enforcement of background checks on all prospective significant shareholders, as well as directors and senior management staff, to uphold the sector’s leadership and ownership integrity, there are minority shareholders who may not meet the CBN’s strict vetting process.
“This is not to discredit the work the CBN is doing because the bank under the leadership of Cardoso has done extremely well. However, as the CBN moves forward with these measures, shareholders are likely to closely monitor any developments and regulatory announcements that may affect their investments.
The outcome of these vetting processes and their implications for shareholders remain uncertain, adding to the apprehension surrounding the situation”, he said.
