The recent announcement from the Central Bank of Nigeria (CBN) indicating a new round of bank recapitalization has significant implications for foreign-owned banks operating in Nigeria, including US-owned Citibank and UK-owned Standard Chartered Bank.
The CBN announced an increase in the capital base for commercial banks with international authorization to N500 billion and national banks to N200 billion.
This move is part of the country’s efforts to bolster its banking sector in line with the ambitious goal of achieving a $1 trillion Gross Domestic Product (GDP) by 2030.
Recommended reading: Nigeria hires Citibank, JPMorgan, Goldman Sachs as advisers for first Eurobond after two years – Report
Citibank and StanChart
For Citibank and Standard Chartered, the recapitalization drive means a potential requirement to substantially increase their share capital and share premium.
- Citibank currently has a combined share capital and share premium of just N14.4 billion, while Standard Chartered stands at N45.4 billion.
- According to the CBN, banks must increase their capital to align with the financial system’s needs in servicing a larger economy.
- The challenge these banks face is to either raise the required additional capital, which Nairametrics estimates to be an additional N185 billion for Citibank and N154 billion for Standard Chartered, or consider other strategic options like mergers, acquisitions, or even forfeiting their licenses if they fail to meet the new requirements.
Sources indicate that the banks are currently assessing their options, taking into consideration the trajectory of the Nigerian economy and whether the required capital raise justifies their continued operations in the country.
- However, despite Standard Chartered having exited most of its African operations, it has expressed a commitment to maintain its presence in Nigeria.
- This suggests that the bank may pursue the capital increase in order to comply with the new requirements.
- Nevertheless, the parent company of the Citibank and StanChart are one of the largest financial institutions in the world and will face minimum challenges raising the capital should they decide to.
- Sources suggest the challenge however, is whether they find Nigeria attractive enough to keep investing considering he economic situation.
Bank recapitalization
This recapitalization is in response to the developmental role banks are expected to play, which includes supporting Nigeria’s growth trajectory and ensuring that they can sustainably contribute to the envisioned $1 trillion economy.
- The CBN’s intention to mop up excess liquidity through Open Market Operations (OMOs) is also part of this broader strategy to stabilize the economy and facilitate this growth.
- According to the new guidelines, international and national banks are to increase their share capital and premium to N500 billion and N200 billion respectively within the next 2 years.
- Nairametrics estimates the combined capital raise will be in the region of N4 trillion over the next three years.
Optics: Investor confidence in Nigerian banks has been high, as evidenced by significant growth in the NGX banking index and the sector’s performance, even amidst a challenging economic climate.
- FUGAZ banks have reached over N1 trillion in market capitalization and benefited from foreign exchange gains and increased net interest income due to rising monetary policy rates.
- This buoyancy could bode well for banks like Citibank and Standard Chartered as they consider their capital raising strategies.
- Moreover, there is a push from Nigerian shareholders for the government and CBN to adopt a tiered recapitalization requirement approach, which could offer different levels of recapitalization based on the operational scope of banks.
- This could provide a more nuanced framework that benefits the overall banking landscape without disproportionately affecting smaller or foreign-owned banks
Recommended reading: Citigroup plans 20,000 job cuts as it reports worst quarter in 15 years
