In a recent report, it has been indicated that the Central Bank of Nigeria (CBN) is considering the possibility of directing banks with international banking licenses to elevate their capital base, potentially exceeding N900bn.
This revelation follows a statement by CBN Governor, Olayemi Cardoso, a few months ago, outlining the apex bank’s intention to urge financial institutions to augment their capital to align with the Federal Government’s ambitious plan to boost the economy to $1tn.
According to the Banking Sector FY 2024 Outlook by CardinalStone Securities, a non-bank securities trading firm, the projection suggests varying capital increments, ranging from N181.85bn for regional banking licenses to N909.27bn for international banking licenses.
Titled “Nigerian banks: On the cusp of a new dawn,” the report bases its forecast on the potential return of CBN to the capital base-to-GDP dollar ratios established in 2005.
These ratios, ranging from 0.04% for regional banks to 0.22% for commercial banks, are considered against the backdrop of the Federal Government’s economic growth vision.
The report underscores the decline in capital requirements since the 2005 recapitalization exercise, citing a drop from 0.04% to 0.22% of GDP in dollar terms to a meagre 0.00% to 0.01% as of 2024.
“Banks may be expected to boost capital base to between N181.85bn (for regional banks) and N909.27bn (for international banks),” states the report, considering a 2024 real GDP of $472.6bn and an exchange rate of N841.61/$ as of December 20, 2023.
It further notes that many banks, particularly tier-1 banks, are likely to meet these requirements, with some even surpassing the thresholds.
However, the report highlights that achieving the ambitious $1tn economic size target in seven years might necessitate even higher capital base requirements.
Tier-1 international banks such as Zenith Bank and UBA are expected to exceed the suggested thresholds, according to the report.
The report concludes by expressing a commitment to monitor developments in this space, eagerly anticipating the decisions and directives that the apex bank will ultimately settle for, along with the associated timelines.
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