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By Chinwendu Obienyi
Credit ratings agency, Agusto and Co has said it anticipates pressure from industry stakeholders in urging the Central Bank of Nigeria (CBN) to reconsider its stance and include retained earnings or shareholders’ funds in the computation of regulatory capital.
It also projected that up to N4 trillion of inflow is expected by banks to meet the apex bank’s new capital requirements if it resists pressure to include retained earnings or shareholders’ funds when calculating banks’ new capital.
Daily Sun reported that the recent developments in Nigeria’s banking sector, particularly the Central Bank of Nigeria’s (CBN) proposal to review capital requirements for commercial, merchant, and non-interest banks, have stirred significant discussions and projections within the financial community.
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.
This has sparked apprehension and uncertainty within the investment community, particularly among shareholders who are closely monitoring developments. However, the Association of Corporate & Marketing Communication Professionals of Banks (ACAMB) has asked Nigerians not to panic or lose sleep over the banks’ recapitalisation programme, stating that financial institutions are in good stead to meet the new targets and timeline.
Weighing in with its perspective, Agusto and Co. stated that if banks could exert pressure on the CBN to allow shareholders to fund or retain earnings in calculating their capital base, the expected inflow would be less than N1.5 trillion.
It stated, “Thus, we anticipate an inflow of circa N4 trillion to meet the new capital regulation. We anticipate significant pressure on the CBN to use the total shareholders’ funds for the computation of regulatory capital or at least to include retained earnings.
Should the retained earnings be used for the computation, we expect a reduction in the capital inflow to N1.5 trillion.”
The rating agency further stated that the depreciation in the value of the naira coupled with the increase in the number of banks resulting in a breach of the single obligor limit of 20 per cent serves as enough reason for the proposed recapitalisation exercise.
The firm projected a paradigm shift in the banking industry the likes of those witnessed during the last recapitalisation exercise in 2004 whilst noting that the strong performance of banks together with the low valuation could lead to institutional investors flooding the sector.
However, the report did not rule out Mergers and Acquisition (M&A) for banks that could find it difficult to meet the apex bank’s capital requirement.
