WHAT is the Banking Sector Recapitalisation Programme 2024?
The Banking Sector Recapitalisation Programme (the Programme) is a regulatory initiative of the Central Bank of Nigeria (CBN) that requires banks to increase their minimum paid-in common equity capital to a specified amount according to their license category and authorisation within a specified period of time.
Why is the Programme necessary?
The Programme became necessary to further strengthen Nigerian banks against external and domestic shocks as well as enhance the stability of the financial system.
By increasing the minimum capital requirements, the CBN aims to ensure banks have a robust capital base to absorb unexpected losses and capacity to contribute to the growth and development of the Nigerian economy.
What is the objective of the Programme?
The broad objective of the Programme is to engender the emergence of stronger, healthier and more resilient banks to support the achievement of a US$1 trillion economy by the year 2030.
Bigger banks with larger capital base and capacity can underwrite larger levels of credit which is critical to lubricate and catalyse the growth of the economy.
Which category of banks are affected by the Programme?
The Programme shall apply to commercial, merchant, and noninterest banks. The goal is to ensure that each institution maintains adequate capital that is commensurate with the risk profile, scale and scope of its operations.
What are the new minimum capital requirements under the Programme?
The new minimum paid-up share capital requirements applicable to each authorisation category of banks are as follows: Type of Bank Authorisation Minimum Capital- Commercial International, N500billion; National, N200billion; Regional, N50billion; Merchant National, N50billion; Non-interest National, N20billion; Regional, N10billion.
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 recognised for the purpose of meeting the new minimum capital requirements.
However, relevant reserves will continue to be recognised in the computation and determination of the risk-based capital adequacy ratio (CAR), in line with the CBN’s Guidelines on Regulatory Capital.
All applications for new banking licence shall comply with the new capital requirements.
What is the time-frame for banks to comply with the new requirements?
The CBN has set a timeline of 24 months (two years) for banks to comply with the new requirements, commencing from April 1, 2024 and terminating on March 31, 2026.
Will the Programme affect banks’ delivery of products and services?
The Programme will not affect the smooth functioning of banks. Accordingly, consumers of financial services are expected to carry on with their regular banking transactions unhindered during the implementation of the Programme.
How will the Programme impact the economy?
The Programme will better position banks to play their intermediation role through lending to critical sectors of the Nigerian economy, thus supporting economic growth and development.
In addition to supporting economic growth, the Programme will help enhance banks’ capital buffers to ensure their continued stability and sustainability in the face of global and domestic macroeconomic headwinds.
What factors did the CBN consider in determining the new minimum capital requirements?
The CBN assessed various factors in determining the appropriate level of the minimum capital requirements. These include risk profile of banks; global and domestic headwinds and their potential impact on banks’ balance sheets; impact of inflation and stress tests of banks’ balance sheets to gauge their resilience to absorb current and unexpected shocks.
Given that significant funds will be received from various investors in the course of the recapitalization exercise, how will the CBN ensure that illicit funds are not used for the purpose of recapitalisation of banks?
The CBN has robust anti-money laundering regulations, which will be strictly enforced, with the active collaboration of relevant law enforcement agencies.
In addition, the CBN will require all banks to ensure that appropriate and effective anti-money laundering screening/checks (Know Your Customer, Customer Due Diligence and Suspicious Transactions Monitoring, etc) are conducted.
Given that new investors may own shares in banks as a result of this Programme, will the CBN ensure that only Fit and Proper persons are approved as significant shareholders of banks?
There shall be strict enforcement of Fit and Proper checks for all prospective and significant shareholders as well as directors and senior management staff of banks.
How are banks expected to raise or meet the required capital?
Banks may meet the new requirement through the issuance of new common shares (by way of public offer, rights issues or private placements); Mergers and Acquisitions (M&As) or upgrade/downgrade of their respective licence category or authorisation.
The CBN will issue guidelines to prescribe the definition, options and approaches to meeting the new minimum capital requirement.
What is the role of the CBN in managing the recapitalisation process?
The CBN will actively monitor and supervise the recapitalisation process to ensure compliance with set guidelines.
This will involve the conduct of on- and off-site reviews, verification of capital, periodic interventions when necessary and broader stakeholder engagements.
How will the CBN ensure the protection of depositors during the Programme?
The CBN, in collaboration with the Nigeria Deposit Insurance Corporation (NDIC), will ensure that depositors’ interests are protected during the Programme.
The CBN will enhance its monitoring and supervisory oversight over the banks and will apply appropriate sanctions for violations of extant laws and regulations, as well as ensure the protection of depositors’ interests.
In the event of a merger or acquisition, how will depositors be affected?
In a merger or acquisition scenario, depositors’ accounts and funds will remain secure. The acquiring institution will assume responsibility for all liabilities and obligations, including the protection of depositors.
How can the public stay informed about the progress of the programme?
The public can stay informed about the progress of the Programme by monitoring communications from the CBN through its official website- www.cbn.gov.ng, social media handles and other communication channels.
What are the consequences if a bank fails to meet the new capital requirements?
The CBN remains optimistic that all banks will comply with the new capital requirements and will constantly engage banks on the status of execution of their respective implementation plans.
In the event of non-compliance with the new capital requirements at the expiry of the transition timeline, the CBN will take appropriate steps in line with the provisions of relevant laws and regulations to sustain confidence in the banking system.
