Impending Merger as Central Bank of Nigeria Increases Capital Requirements for Banks

The banking landscape in Nigeria is on the brink of significant transformation, with mergers looming large as the Central Bank of Nigeria (CBN) announces a hike in minimum capital requirements for banks.

This pivotal development was disclosed through a circular issued by Haruna Mustafa, the Director of the Financial Policy and Regulation Department at the CBN, addressed to all commercial, merchant, and non-interest banks operating within the country.

The CBN’s directive sets a new benchmark, particularly affecting commercial banks with international authorization, which now must meet a minimum capital base of N500 billion, a substantial increase from the previous N50 billion requirement established back in 2005.

Additionally, the regulatory authority has delineated minimum capital requirements for various categories of banks. For banks with a national spread, the requirement stands at N200 billion, while regional and merchant banks are expected to maintain a minimum capital base of N50 billion each. Similarly, national non-interest banks must have a minimum capital of N20 billion, while regional non-interest banks are required to have a minimum of N10 billion in capital reserves.

All banks are mandated to meet these revised minimum capital requirements within a 24-month timeframe, starting on April 1, 2024, and concluding on March 31, 2026.

The rationale behind this stringent measure, as elucidated by the CBN, stems from the prevailing macroeconomic challenges exacerbated by both external and domestic shocks. These challenges underscore the imperative for banks to fortify their financial resilience, solvency, and capacity to support the growth trajectory of the Nigerian economy.

The circular states, “The prevailing macroeconomic challenges and headwinds occasioned by external and domestic shocks have underscored the need for banks to raise and maintain adequate capital to enhance their resilience, solvency, and capacity to continue to support the growth of the Nigerian economy. Consequently, in furtherance of its statutory responsibility to promote a safe, sound, and stable banking system and in line with Section 9 of the Banks and Other Financial Institutions Act (BOFIA) 2020, the Central Bank of Nigeria (CBN) at this moment announces an upward review of the minimum capital requirements for commercial, merchant, and non-interest banks in Nigeria.”

This move by the CBN marks a significant shift in the regulatory framework governing Nigeria’s banking sector. It reflects the central bank’s commitment to fostering a robust, secure, and stable banking system, which is crucial for sustaining economic growth and financial stability.

Recalling the historical context, it’s noteworthy that the capital requirement for an international banking license stood at N50 billion in 2005, underscoring the magnitude of this recent adjustment. Similarly, the minimum capital requirement for national banks at that time was N25 billion, highlighting the substantial increase mandated by the CBN in its latest directive.

As banks navigate the challenging economic landscape and strive to meet these heightened capital requirements, mergers and acquisitions are expected to become a prevalent strategy. Such consolidations not only facilitate compliance with regulatory mandates but also position banks for enhanced competitiveness, efficiency, and resilience in an increasingly dynamic and competitive market environment.

The CBN’s decision to raise the minimum capital requirements for banks in Nigeria signifies a proactive approach to fortifying the resilience and stability of the banking sector amidst evolving economic dynamics. While presenting immediate challenges for banks, this measure is poised to catalyze a wave of strategic transformations, including mergers and acquisitions, ultimately contributing to a stronger, more resilient banking ecosystem capable of driving sustainable economic growth and development.