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  • Windfall levy on banks’ exceptional FX gains

    Windfall levy on banks’ exceptional FX gains

    •  By Musa Ilallah

    Nigeria is set to implement something unprecedented: a 70 percent tax or levy on a ‘windfall’ profit that accrued to commercial banks following last year’s significant devaluation of the Naira—a devaluation arising from a series of significant economic reform initiatives by President Bola Tinubu’s administration.

    The banks had been holding substantial foreign currency assets, which multiplied instantly in local-currency value following the devaluation.

     A Nigerian newspaper carried out an analysis of Nigeria’s five biggest banks (the famed F-U-G-A-Z) and found that the foreign exchange revaluation gains they declared in H1 2023 – amounting to a combined 1.3 trillion Naira – were seventeen times more than what they declared in the same category the previous year, H1 2022.

     The federal government has now decided that it will, in the spirit of fairness and redistribution, impose a levy on the portion of this windfall profit that has arisen specifically from those FX gains.

    The government wants to ensure that the benefit spreads to as many Nigerians as possible, through public spending: the levy will be spent on infrastructure, education, healthcare and public welfare initiatives.

    The Bill sent to the National Assembly to give legal backing to this move, by amending the 2023 Finance Act, has been passed by both chambers. Opinions have been mixed, expectedly. The argument against it is the one against taxation generally—all things considered, nobody likes taxes or levies—and also the idea that government might be trying to reap where it hasn’t sown. This of course does not make any sense, considering that it’s the government, through its policy-making, that made the windfall possible in the first place.

    There’s also the claim that this move will alarm investors—that it’s some kind of anti-business move, especially at this time that the banks are in capital-raising season.

     But that is a claim that can be dismantled easily.

    This is a one-off redistributive levy being imposed on a benefit that will not be replicated in the bank’s books anytime soon. It’s a levy that fully recognizes the exceptional nature of what is being taxed.

     As to the arguments for the windfall levy, there are a handful of compelling ones.

    First is the moral imperative for this benefit to go round to as many beneficiaries as possible. Not necessarily as direct cash handouts, but better still through investment in critical interventions and services—infrastructure, education, health, social welfare and so on.

    Read Also: Tinubu addressing demands, no need for protest – FEC

    Also, the planned levy is not seeking to appropriate the entire available windfall. It is a one-off 70 percent levy, of a substantial sum of money, which leaves the balance of 30 percent available for the banks to still benefit from and put to use, in the form of dividends, or whatever else they choose to do with it. Meanwhile, the Tinubu administration’s reforms in the last one year have helped restore a level of macroeconomic stability and predictability that’s not been seen in a while.

    The new banking environment, with its return to orthodox principles, is a big plus for the commercial banks, especially those who are interested in doing banking the right way.

     The foreign exchange reforms have clearly been—and will continue to be – very favourable to the banking sector in Nigeria—this massive FX windfall that will now be taxed and invested into critical government spending being just one example of the upsides. It should also be pointed out that windfall taxes/levies are not uncommon at all, around the world. Since 2022 the UK government has imposed an annual windfall tax on oil and gas companies in the country—which have been enjoying record profits on account of the hike in energy prices caused by the Russian invasion of Ukraine.

    The UK government has said that the taxes will stop as soon as oil and gas prices drop below a certain threshold. Going forward, in my view, public focus should ideally be on ensuring that the proceeds of the windfall levy are spent judiciously and transparently.

    Nigeria has many things that these funds could be applied to, and it’s important that there are conversations about this.

     We have the Renewed Hope Infrastructure Development Fund (RHIDF), the new Students Loan Fund, the Consumer Credit Initiative, the Basic Healthcare Provision Fund. Some of the money could also go into subsidizing CNG vehicle-conversions for citizens, setting them up for lower transport and commuting costs in the long-term.

    The key is for the federal government to focus on interventions that can be readily felt by as many people as possible.

    And of course, it makes all the moral and logical sense in the world for Nigerians to directly benefit from monies arising from the effect of foreign exchange reforms that, whilst necessary, have caused quite a bit of pain in the populace.

     As for the banks, they are in fact also going to benefit from this levy.

    The economic boost that the application of the windfall levy should generate in the wider economy will be felt even by the banks themselves.

    I hope that in the public conversation going forward, this levy on banks’ FX gains is not wrongly framed in ‘government versus private sector’ terms. Instead, it is ‘government, private sector and the people’ versus the many challenges that the funding will address, for the benefit of Nigerian households and businesses.

    This is definitely one tax/levy that all Nigerians should welcome.

     .

    •Ilallah can be reached on musahk123@yahoo.com

  • Banks’ credits to private sector rise to N74.31tr

    Banks’ credits to private sector rise to N74.31tr

    Banks are increasing lending to the private sector with an average monthly N1.6 trillion facility over the past two months.

     The N1.6 trillion pushed credits to the private sector to N74.31 trillion.

    Latest data from the Central Bank of Nigeria (CBN) indicates that credit to the private sector (CPS) rose by 65.9 percent or N29.52 trillion to N74.31 trillion last May compared to N44.79 trillion recorded in the same period last year.

    A month-on-month breakdown shows sustained growth in lending over the past two months with additional credits of N1.39 trillion and N1.71 trillion in May and April 2024 respectively.

    The CPS includes loans, trade credits, other account receivables, and banks’ support to the private sector within a period.

    The CPS is a global measure of the banking sector’s balance sheet resilience and contribution to the national economic agenda.

    The growth in lending and support to the private sector underlines the resilient balance sheet of banks and their responses to the CBN’s push for increased lending to bolster economic activities.

    The data illustrate the importance of the banking sector emerging as the backbone of the country’s economic renewal agenda.

    Banks’ lending and support to the private sector rose from N71.21 trillion in March 2024 to N72.92 trillion in April. They rose to  N74.31 trillion in May 2024, representing a month-on-month increase of 1.9 percent and 2.4 percent for May and April 2024 respectively.

    Read Also: Alawuba chairs Body of Banks’ CEOs

    The latest CPS data came on the heels of a recent report on capital importation which showed that banks attracted nearly two-third of capital importation.

    Analysts had said this was a measure of confidence in  Nigerian banks as foreign investors gradually took a more active stance in the nation’s economy.

    Experts agreed that increased private sector credit implies a major boost for the economy as there is a link between credit to the private sector and economic growth.

    Some studies have continuously found that increased lending by banks directly leads to an increase in Gross Domestic Product (GDP).

    Experts at Cordros Capital said they expected the re-enforcement of  CBN’s limit on the loans-to-deposits macro-prudential ratio for Deposit Money Banks (DMBs) to continue to drive the willingness of commercial banks to create risk assets.

    A study by the CBN concluded that “credit is growth-enhancing, even when trade openness, monetary policy, investment climate, and infrastructure are low.” The study found that private-sector credit increases economic growth.’’

    The balance sheet strength of banks also determines the flow of credits, with the continuing increase in lending amidst macroeconomic headwinds underpinning Nigerian banks’ resilience and stability.

    In a study on ‘Balance Sheet Strength and Bank Lending During the Global Financial Crisis’, researchers at International Monetary Fund (IMF) examined the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy.

    The study found that “banks with strong balance sheets were better able to maintain lending during the crisis.”

    According to the study, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks.

    “However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework,” the IMF report stated.

    Managing Director, Arthur Steven Asset Management Olatunde Amolegbe, said the growth in credit to the private sector could be attributable to an increase in economic activities.

    He, however, pointed out that other factors such as inflation and devaluation could moderate such increase

    Chief Executive Officer, the Centre for the Promotion of Private Enterprise (CPPE) Muda Yusuf, said the credit outlook remains cautious. He called for an expansive distribution of credits across all tiers of companies and sectors.

    According to him, there are major concerns in terms of the distribution of credits across sectors and companies with small businesses, which contribute more to job creation and economic inclusion, not likely to benefit much.

    He noted that banks tend to be wary of credit risk concerns associated with lending to small businesses and certain sectors. Yusuf added that efforts should be made to drive inclusive and stable credit access to all sectors, including growth and employment elastic sectors such as agriculture, manufacturing, real estate, and mining and construction. 

    CBN Governor  Olayemi Cardoso had said the ongoing recapitalisation would strengthen banks further to drive the $1 trillion national economic target and support stable economic growth.

    According to him, additional capital would not only provide a substantial buffer for banks against potential economic challenges but also enhance Nigeria’s banks’ capability to support massive economic growth and play competitively globally.

    Experts agree that considering the increase changing dynamics in the banking sector and the overall economy since the last recapitalisation, it has become necessary to strengthen the banks’ financial positions.

  • Banks face tough conditions in recapitalisation drive

    Banks face tough conditions in recapitalisation drive

    • CBN targets strong banks capable of supporting govt’s $1tr GDP by 2030

    Ongoing bank recapitalisation will not be business as usual, Central Bank of Nigeria (CBN) Governor Olayemi Cardoso said yesterday.

    He hinted that the conditions will be tough to ensure that all banks that scale the hurdles will be strong enough to withstand the headwinds.

    The banks should be able to drive the economic target of the government, which is to achieve a $ 1 trillion dollar Gross Domestic Product (GDP) mark by 2030.

    The plan is to strictly scrutinise the financial institutions as they move towards recapitalisation.

    CBN governor spoke in London at an event by the United Kingdom-Nigeria Chamber of Commerce.

    His position was presented by Deputy Governor (Financial Systems Stability) Mr. Phillip Ikeazor.

    Cardoso said: “The CBN will rigorously enforce our fit and proper criteria for prospective new shareholders, senior management and board members of banks.”

    He added the CBN will ensure banks have sufficient capital to meet their operational needs and manage risks effectively.

    Cardoso said the apex bank will scrutinise the financial health of the merged entities to ensure a realistic assessment of their financial position.

    He reiterated that the core objective of the recapitalisation programme is “to trigger the emergence of stronger, healthier and more resilient banks.”

    This, he said, aims to create a more robust banking sector capable of withstanding economic shocks and supporting the government’s ambitious goal of achieving a $1 trillion Gross Domestic Product (GDP) by 2030.

    The CBN governor listed the anticipated gains of recapitalisation to include: strong banks that are expected to lend more money to businesses and individuals, stimulating economic growth; a more stable and secure banking system capable of attracting greater foreign investment; and improved financial health which will lead to a more stable foreign exchange market.

    Others are stronger capital buffers that will allow banks to manage risks more effectively; improved financial health, leading to better credit ratings for Nigerian banks, making it cheaper to borrow money; diversified ownership base as the programme is expected to encourage broader participation in bank ownership; stronger oversight and stricter criteria that could lead to improved decision-making within banks and increased market volume and value that will give rise to a healthier banking sector and ultimately lead to a more vibrant stock market.

    The CBN clarified that the exclusion of retained earnings from the minimum capital requirement is intended to simplify calculations and enhance transparency.

    “This aligns with international standards like Basel III, which emphasise core capital elements to promote financial stability,” Cardoso said.

    He pointed to the successful 2004/5 Banking Sector Reforms as a model for the initiative.

    Those reforms, Cardoso noted, consolidated the industry, increased capital bases and enhanced resilience during the global financial crisis.

    He also expressed confidence that the ongoing efforts will build upon the achievements and create a more robust and competitive banking sector in Nigeria.

    The CBN on March 28 announced a two-year bank recapitalisation exercise which commenced on April 1 and is expected to end on March 31, 2026.

    Read Also: Tinubu means well for north, says Shettima

    The recapitalisation plan requires a minimum capital of N500 billion, N200 billion, and N50 billion for commercial banks with international, national, and regional licenses.

    The CBN also raised the capitalisation baseline for merchant banks (N50 billion) and non-interest banks (national: N20 billion and regional: N10 billion).

    The apex bank further set an April 30 deadline for the recapitalising banks to submit recapitalisation plans.

    Many lenders were able to beat the deadline and a few others are finalising their recapitalisation plans for submission to the regulator.

    Many banks have already approached the domestic capital markets to raise new funds.

    The options for the banks include private placement which allows lenders to seek new funds from pre-selected private investors, and rights issue which authorises them to invite existing shareholders to purchase additional new shares at a discounted price relative to the current market price.

    Some banks are also raising new funds through the Holding Company (HoldCo) option, which allows them to raise debt through their HoldCo which can then be injected as equity capital in the bank.

    The CBN asked banks to explore other options such as mergers/acquisitions or downgrade their licence.

  • Banks, others pay N400m fine for data breaches

    Banks, others pay N400m fine for data breaches

    No fewer than four major banks and three other institutions have been sanctioned and made to pay fine worth N400 million to the Federal Government for infractions relating to citizens data breaches,  the National Commissioner, Nigeria Data Protection Commission (NDPC),  Dr Vincent Olatunji said yesterday.

    According to Dr Olatunji, over 1000 financial institutions, schools, insurance companies and consultancy firms have been investigated for citizens’ data breaches within the past one year.

    Dr Olatunji who said investigations are still on-going regarding data infractions, noted that through the activities of the NDPC, the levels of compliance with the Nigeria Data Protection Act have increased both in the private and public sectors.

    “When we started, the level of compliance within the private sector was about 49 per cent while the public sector was four per cent. But today, private sector compliance is above 55, while public sector has reached 15 percent,” Dr Olatunji said.

    He said as the nation’s data ecosystem is now worth over N10 billion, the Commission considered it imperative to ensure that citizens data are safe, secure and protected in line with global best Dr Olatunji spoke during an interactive session with newsmen at the Abuja Continental Hotel to mark the first year anniversary of the signing into law of the Nigeria Data Protection Commission Act by President Bola Tinubu.

    He said Nigeria is now in the forefront of the activities of the Global Data Assembly due to Data Protection Act 2023 and the impact of the data ecosystem to the national economy as nations like Kenya, Ghana, China, Singapore and Malaysia, among others now share experiences with Nigeria.

    “The Data Protection Act 2023 is a major milestone for Nigeria. Mr President laid our apprehension to rest when he signed the Act on June 12, 2023. It was a major turnaround for the industry. Now the data ecosystem is beyond everybody because it is a global phenomenon due to the impact of technology.

    “In terms of jobs and wealth creation, promotion of tourism, perception and attraction of foreign direct investments into Nigeria, we have taken a leapfrog and even overtaken some countries.

    “And that’s why Nigeria was given the hosting right for 2024 All African Data Protection Commission’s and Institutions. About 30 countries would be here next year for the event,” Dr Olatunji said.

    He said the Commission has concluded arrangements to train 10,000 public servants in responsible data management, while about 1,000 data protection officers and processors including journalists would undergo training by the NDPC.

    Read Also: FG approves N13b for National Research Fund, multipurpose labs for varsities

    Olatunji said capacity building, awareness creation and stakeholders’ engagement have raised the bar for compliance within the ecosystem, stressing that NDPC now partners with the CBN, NCC, SMEDAN, and other regulatory institutions to ensure that stakeholders under their supervision comply with the Data Protection Act.

    To check the activities of digital loans platforms, Dr Olatunji said the NDPC collaborate with CBN, ICPC, EFCC and other regulatory authorities, lamenting that most of the illegal digital loans platforms had no known or traceable addresses.

    He however said awareness would continue to be created for vulnerable Nigerians who become victims of the loan sharks due to ignorance. He added that the nation’s population and landmass constitute a challenge to total clampdown on the digital loan sharks as most of them operate from isolated or remote areas without known addresses.

  • ‘Recapitalisation will make Nigerian banks more competitive globally’

    ‘Recapitalisation will make Nigerian banks more competitive globally’

    The ongoing recapitalisation exercise will enhance the capacity of Nigerian banks to play increasingly dominant roles in Africa’s financial markets and compete for large-ticket transactions globally.

    Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Mr Sam Onukwue, said the decision of the Central Bank of Nigeria (CBN) to increase the capital requirements for various banks was in the best interest of the banking sector and the Nigerian economy.

    According to him, the new minimum capital for various banks is in order given the level of risks that banks bear nowadays.

    “I believe that the CBN has done the right thing if our banks should compete in the global market, including the African Continental Free Trade Area (AfCFTA). With the current inflation rate and exchange rate, it has become almost impossible for our banks to operate in line with new global minimum capital threshold

    “Besides, the level of risks which the banks bear today has significantly been exacerbated by the current macro-economic vagaries. I also believe the apex bank is repositioning the banks to be able to finance the envisaged $1 trillion economy in the next seven to eight years. In the light of the foregoing, I have no doubt that the apex bank is fair enough to base the new share capital on the level of authorisation of each bank.

    “The next thing is for every bank to justify why it should continue to operate in the banking sector. We must admit that various external and domestic factors have significantly impacted the Nigerian economy, necessitating an increase in minimum capital requirements for banks. This measure aims to fortify their capital base, enable them to absorb unforeseen losses and sustain their role in fostering growth and development,” Onukwue said.

    Read Also: Tinubu administration committed to empowering youths — Shettima

    He added that the new capital requirements of banks would also spur activities in the primary segment of the Nigerian capital market, which has remained largely inactive due to paucity of new issues over the years.

    “The primary market has been relatively inactive over the years because of the general lull in the economy. Potential companies that would have floated initial public offerings (IPOs) were reluctant for fear of undersubscription. To worsen the situation, many investors have lost money in the primary market due to failure of companies to list their shares in the secondary market after capital raising in the primary market.

    However, with the directive on banks’ recapitalisation, activities shall bounce back in the primary market,” Onukwue said.

    He pointed out that ASHON has always ensured that its members operate professionally, while the association collaborates with the capital market regulators, operators and investors in the ecosystem.

    He recalled that when the former Governor of the CBN, Professor Chukwumah Soludo, announced that banks in Nigeria should have a minimum capital base of N25 billion by the end of 2005, ASHON members served as stockbrokers to the issues, issuing  houses, and other areas of fund raising for the banks.

    “Many lessons were learned at the end of the exercise. Our members have  capacity to work with banks in various ways to meet the new requirements of  recapitalisation,” Onukwue said.

    The CBN had on March 28, 2024 announced new capital base on the basis of a bank’s authorization, ranging from N200 billion to N500 billion and this is expected to commence in the next two years.

  • EXPLAINER: What happens to depositors’ funds when banks fail

    EXPLAINER: What happens to depositors’ funds when banks fail

    The Central Bank of Nigeria (CBN) has revoked the license of Heritage Bank Plc with immediate effect.

    This decision, it said, was to maintain a stable and healthy financial system as authorised under Section 12 of the Banks and Other Financial Institutions Act (BOFIA) 2020.

    A statement by Mrs. Hakama Sidi Ali Acting Director, Corporate Communications said the revocation was executed after Heritage Bank breached Section 12 (1) of BOFIA 2020.

    For customers of the bank, here’s what happens to your money when the license of your bank gets revoked:

    1. The Nigeria Deposit Insurance Corporation (NDIC) would promptly start the payment process of insured sums to eligible depositors of the closed banks by verifying their eligibility at the banks’ premises.

    2. The insured limit is a maximum of N5,000,000 for each depositor for deposits held in each insured Deposit Money Bank (DMB) like Heritage.

    Read Also: Fidelity Bank outperforms banks, stock market with 507% gain in five years

    3. This implies that if you have about N10 million in your account, you would be paid N5m if a bank becomes insolvent or closed by the Central Bank of Nigeria (CBN)

    4. Depositors would then be required to obtain necessary documentation, including proof of account ownership, valid identification, and an alternative bank account, to facilitate the verification and payment of their insured deposits.

    5. If a husband and wife or any two or more persons have, in addition to their individual accounts, a joint account in the same insured bank, the joint account and each of the individually-owned accounts are separately insured up to the insured maximum sum.

  • How banks plan to meet recapitalisation conditions

    How banks plan to meet recapitalisation conditions

    • CBN deadline ends tomorrow

    More details were gathered at the weekend on how banks plan to achieve the new minimum capital requirements ahead of tomorrow’s deadline for banks to submit their implementation strategies for the recapitalisation to the Central Bank of Nigeria (CBN).

    Multiple insiders confirmed to The Nation yesterday that Tier one and two banks have concluded the strategic outlines that will serve as roadmaps for the two-year recapitalisation plan. Many of the banks are expected to submit their final strategies between today and tomorrow, although a subtle lobby for extension is ongoing.

    Outlines of the strategic plans by the banks showed that the first set of offers under the current dispensation may hit the market in early third quarter, with a slight cluster of offers expected in the last four months of the year.

    According to the plans, banks may raise more than N7 trillion in multiple offerings to existing shareholders, general investing public, private high networth individual and institutional investors and foreign strategic investors.

    Under the recapitalisation plan, banks are required to submit step-by-step activities, transactional details, instruments and other options for their recapitalisation to the apex bank not later than April 30 (tomorrow). The plans will cover the two-year compliance period ending March 31, 2026.

    The CBN recapitalisation framework gives banks three broad options of injection of new equity capital, mergers and acquisitions and upgrade or downgrade of licence authorisation.

    In the ongoing recapitalisation, CBN uses a distinctive definition of the new minimum capital base for each category of banks as the addition of share capital and share premium, as against the previous use of shareholders’ funds. While many banks have shareholders’ funds in excess of the new minimum capital base, their share premium and share capital significantly fall short of the new minimum definition.

    Industry sources, who preferred anonymity because of the roles they are playing, said directors of most banks have signed off on the strategic work plans for submission to the CBN, noting that such documents do not require notification of statutory board meeting before the board could approve the plan.

    The implementation strategies indicated that most banks, currently more than two-thirds, plan to undertake equity capital raising, with rights issue the first option as existing major investors seek to protect their controls. There were few considerations for dividend conversion option, an existing practice that allows shareholders to elect to convert their cash dividends to equities, subject to regulatory approval.

    There is a groundswell of optimisms in the sector, with most banks outlining substantial capital raising that could make them to continue as standalone entities.

    An investment banking adviser said there were preliminary feelers of mergers and acquisitions noting that business combinations may play big in the second half of 2025 and in the first quarter of 2026.

    A mid-tier commercial bank, which recently acquired a United Kingdom subsidiary, plans a three-step recapitalisation to raise nearly N380 billion needed to retain its international banking licence. The bank expects to roll out a combined rights and public offering, which may hit the market as early as June. It will thereafter seek funds from private investors under a special placement arrangement. Where there is any remaining gap, the bank will round off with a new public offer in a multi-layered issuance plan expected to culminate in first quarter 2026 ahead of the March 31, 2026 deadline for the recapitalisation.

    Read Also: How recapitalisation of banks will boost economy, by PwC

    Nigeria’s five largest banks-Access Holdings, Guaranty Trust Holdings Company (GTCO), Zenith Bank, and United Bank for Africa (UBA), are raising about N5 trillion, although half of that size will be more than enough for the banks to meet their minimum capital requirements. All the banks in this category falls under the N500 billion international authorisation category.

    Large banks are raising more funds to play in competitive acquisitions market, when the recapitalisation hits a heat in the second half of 2025.

    Already, shareholders of Access Holdings have approved the company’s plan to raise $1.5 billion and N365 billion in a multi-tranche, multi-currency and multi-instrument capital raising plans. Access Holdings is expected to lead with the rights issue of N365 billion, which allows the company to surpass its target of N500 billion new minimum capital base.

    The board of FCMB Group Plc said it has approved a roadmap for the recapitalisation of the group’s commercial banking subsidiary-FCMB Limited. FCMB Group, which emerged from a core base of investment banking and successful history of fund raising, plans to raise equity funds and retain its brand. An informed source however said the group is opened to business combination that does not undermine its brand essence.

    Zenith Bank has indicated it was on course to receiving the needed shareholder’s approval, which will kick-start its capital raising effort. Shareholders of the bank are scheduled to meet next week to consider multiple resolutions on the share offering and recapitalisation plan.

    Zenith Bank, which at the weekend rounded off conversion to holding company structure, is creating new 34 billion ordinary shares of 50 kobo each for a multi-layered capital raising process that could see the bank with nearly N1 trillion.

    Shareholders of UBA are also scheduled to meet next month at their annual general meeting to consider and approve a multi-tranche, multi-instrument capital raising programme that allows UBA to substantially raise more than necessary to surpass the new minimum capital base. The bank plans to increase its share capital from N17.1 billion of 34.2 billion ordinary shares of 50 kobo each to N22.5 billion of 45 billion shares through the creation of 10.8 billion new ordinary shares of 50 kobo each. The broad mandate will empower the board to create additional shares, determine appropriate combination of instruments and markets, underwrite the offers and waive the rights of shareholders in offering unallotted shares to new investors.  

    GTCO is seeking shareholders’ approval for a $750 million multi-tranches, multi-instrument capital raising. The group is creating new 15 billion ordinary shares of 50 kobo each for its new share issuance programme.

    Stanbic IBTC Holdings Plc has launched a N550 billion capital raising process, including a rights issue of N150 billion and a N400 billion debt capital raising. Shareholders of the company will meet next month to authorize the board “to raise additional equity capital of up to N150 billion by way of a rights issue or offer for subscription on such terms, tranches, conditions and dates as may be determined by the directors”.

    The company, which had in many instances dividend-equity conversion, is also seeking shareholders’ approval to reaffirm the company’s dividend conversion scheme under which shareholders may be permitted to elect to receive new ordinary shares in the company, credited as fully paid, instead of the whole or any part of any cash dividends declared by the company.

    Following the completion of the additional equity capital raise, the issued and paid up share capital of the company will be increased from N6.478 billion divided into 12.957 billion ordinary shares of 50 Kobo each to a maximum of up to N8.25 billion by the creation of up to 3.54 billion ordinary shares of 50 Kobo each.

    FBN Holdings, which had secured earlier approval to raise some N150 billion, had cancelled an extraordinary general meeting called to consider a N300 billion capital raising plan. Market analysts had said they expected FBN Holdings to review its recapitalisation plan upward.

    The CBN last month released its circular on review of minimum capital requirement for commercial, merchant and non-interest banks. The apex bank increased the new minimum capital for commercial banks with international affiliations, otherwise known as mega banks, to N500 billion; commercial banks with national authorisation, N200 billion and commercial banks with regional license, N50 billion.

    Others included merchant banks, N50 billion; non-interest banks with national license, N20 billion and non-interest banks with regional license will now have N10 billion minimum capital. The 24-month timeline for compliance started yesterday and ends on March 31, 2026.  

  • ‘Cost management, not revenue growth, shapes banks’ profitability’

    ‘Cost management, not revenue growth, shapes banks’ profitability’

    The key differentiator between profitable and nonprofitable banks and Fintechs is now cost management, not revenue growth, a joint Global Payments Innovation Jury Report by World Bank and Interswitch has said.

    According to the report released at the weekend, a significant number of players believe this is ultimately a positive change for the global payments industry.

    They, however, expressed concerns that direct consequences of the recently increasing focus on early profitability could be reduced levels of innovation which may impact future growth.

    According to the report, emerging markets where cards have not yet gained a significant foothold, will struggle to gain acceptance when competing with account-to-account payments and mobile money.

     “Credit and debit cards will be hard to dislodge from their leadership role in developed markets, but growth will be much harder to achieve than previously,” it added.

    Continuing, the report said The talent acquisition activities of payment enterprises in developed markets are a significant challenge for those in emerging markets, with almost 60 per cent of Jury members in emerging markets saying that they are losing an unacceptable number of staff with consequential risks to innovation programmes and sometimes even ongoing operations.

    Presenting the latest report entitled: “Market meltdown – impacts on infrastructure, regulation and innovation” at Interswitch’s offices in Nairobi, East Africa’s key hub for payments and fintech, John Chaplin, Senior Adviser/Board of Director at Interswitch, and also the founder and Chairman of the Global Jury unpacked some major insights encapsulated in the report, which analyses the in-depth perspectives of over 130 payment experts spanning all continents of the globe.

    He particularly highlighted the jury’s depth of understanding of the causes and effects of macroeconomic changes and their impact on the long-term direction of the payments industry which helps the industry as a collective to understand how to navigate the turbulence of the times.

    Asked which findings from the report findings were somewhat unexpected, Chaplin cited the general views expressed by the payments innovation jury alluding to banks being seen to have potential as long-term players in the mobile wallet space.

    Read Also: How recapitalisation of banks will boost economy, by PwC

    According to the report, which plays up the growing importance of compliance and risk management as pivotal considerations as payment volumes grow exponentially, “Most of the mobile wallet buzz is around new market entrants (mainly MNOs in developing markets and fintechs everywhere) but the Jury thinks that the banks are not finished yet and that they are best placed for success once the market for wallets becomes more regulated, as they have so much experience managing compliance at scale…”

    From a perspective of profitability versus growth, Chaplin opined “I think that profitability will remain much more important than hyper growth. Over the past few years, investors and the broader market have tended to believe that high growth automatically leads to profitability. I don’t think that is always right. Business leaders should always be seeking to generate a return for shareholders in the not-too-distant future.”

    Commenting on the Interswitch Group’s frontline role in bringing the report to fruition, Mitchell Elegbe, Founder and Group Chief Executive Officer stated that “We are thrilled at Interswitch to also contribute our perspective, as a pan-African payments innovation enabler, to this report which, with every edition, continues to facilitate more balanced appraisal and better understanding of the global payments industry as it continues to evolve ever so dynamically.”

    With research undertaken in collaboration with World Bank and supported by Interswitch, FIME and HPS, the 2024 Payments Innovation Jury is the most diverse in its 16-year history.

    Also, 136 Jurors from all over the world participated in the research, all in senior roles at national payments companies, banks, fintechs, payments policy bodies, central banks and investors. This year, the number of central bank & regulators and investors each increased by 25 per cent, enabling an even more representative picture of the challenges and opportunities ahead.

    The Jury was also delighted to welcome several Jury members from South and Central America for the first time, making the insights gathered truly global.

  • ‘Quoted banks need N3.31tr’

    ‘Quoted banks need N3.31tr’

    Thirteen banks listed on Nigerian Exchange (NGX) will require N3.31 trillion new capital for them to be fully recapitalised based on the Central Bank of Nigeria (CBN)’s guidelines.

    The banks include Access Bank Plc,  Fidelity Bank Plc, FBN Holdings Plc, FCMB Group Plc, Guaranty Trust Holding Company Plc,  Stanbic IBTC Bank Plc, UBA Plc, Zenith Bank Plc.

    Analysts at Commercio  Partners said an analysis of 13 listed banks across various tiers with a combined shareholders’ fund of N1.98 trillion indicate that they will need N3.31 trillion to meet Central Bank’s (CBN)’s new minimum capital requirement of N5.3 trillion for them.

    The analysts said the ongoing round of consolidation, potentially mirrors the 2004 reform that reduced the number of banks from 89 to 25. This strategic move is expected to unleash a surge in foreign direct investment (FDI).

    “In 2004 recapitalisation, from N5 billion to N25bilion-N50 billion of which included retained earnings, banks raised N406.4 billion from the capital market, of which N360 billion was verified and accepted by the Central Bank of Nigeria (CBN), which resulted in Foreign Direct Investment (FDI) inflows of US$652 million- and 162,000- pounds sterling,” they said in the company’s macroeconomic and markets reports released at the weekend.

    Prior consolidation efforts in 2004, the new directive on the bank recapitalisation has led to a 1,900 per cent increase to N500 billion, given how the banking sector has grown, robustness and stability to hedge against unforeseen circumstances.

    According to them, reflecting on past events, such as those in 2004, and considering the naira’s devaluation against the backdrop of economic growth (notably 9.25 per cent in 2004 versus 3.3 per cent in 2022) also given that capital importation has exhibited a downward trajectory since 2019, with foreign investment in the banking sector experiencing a significant decline of 60.2 per cent year-on-year in 2023, banks will have to diversify their funding sources, drawing from both local and foreign investments.

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    “We delved into an intricate analysis of the potential impacts of the upcoming recapitalisation compared to its predecessor in 2004, which drew a substantial over$750 million in Foreign Direct Investment (FDI). Our study sought to refine projections by factoring in a multitude of economic variables beyond the sheer size of the recapitalisation,” the company said.

    They explained that among the pivotal factors we scrutinised were the proportion of foreign investors in banks, the prevailing economic growth rate at the time of recapitalisation, exchange rate volatility, and the overall performance of banks, among others.

    “Our analysis revealed a nuanced picture, shedding light on the complexities that influence FDI dynamics. Interestingly, our findings suggest that the forthcoming recapitalisation may not wield the same magnetic pull on FDI as witnessed in 2004. This conclusion stems primarily from the observed deterioration across key factors influencing FDI inflows,” they said.

    “Notably, both the exchange rate stability and the pace of economic growth have experienced declines, signaling a less favourable environment for attracting foreign investment. it’s imperative to acknowledge the nuanced limitations inherent in our analysis, despite its depth and breadth.”

    One significant limitation lies in the inherent complexity of the banking landscape since the 2004 recapitalization,” the company analysts added.

    They stated that since then, banks have undergone substantial structural transformations, experiencing significant growth in size and reach.

    “This expansion has likely altered the dynamics of FDI attraction, potentially mitigating the direct comparison with the 2004 scenario. Other microeconomic indicators, such as the financial health of individual banks, their profitability, and the magnitude of retained earnings, could significantly impact investor perceptions”.

    “In particular, the substantial accumulation of retained earnings within the banking sector since 2004 could signal financial robustness and resilience. This, coupled with increased capitalization, might serve as compelling signals to potential foreign investors, potentially offsetting some of the adverse effects of deteriorating macroeconomic conditions,” they said.

    “The CBN has also shifted its focus from emphasizing capital quantity to prioritizing capital quality, aiming to reduce risks associated with foreign exchange (FX) volatility and inflation. This strategic shift in regulatory priorities is evident in data obtained from 13 banks across all tiers,” they stated.

  • Banks face special guidelines to raise funds at capital market

    Banks face special guidelines to raise funds at capital market

    Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), is finalising special rules and regulations that will serve as guidelines for banks seeking to raise funds under the new recapitalisation programme.

    Nigerian banks are expected to raise more than N4 trillion in new equity funds under a new recapitalisation programme announced by the Central Bank of Nigeria (CBN).

    The apex bank had last month released its circular on review of minimum capital requirement for commercial, merchant and non-interest banks. CBN increased the new minimum capital for commercial banks with international affiliations, otherwise known as mega banks, to N500 billion; commercial banks with national authorisation, N200 billion and commercial banks with regional license, N50 billion.

    Others included merchant banks, N50 billion; non-interest banks with national license, N20 billion and non-interest banks with regional license will now have N10 billion minimum capital.The 24-month timeline for compliance started on April 1, 2024 and ends on March 31, 2026.  

    SEC at the weekend stated that it was concluding arrangements for guidelines for banks’ fund raising in consultation with other stakeholders, to ensure the smooth and efficient implementation of the banks’ recapitalisation programme.

    This was part of the conclusions at the meeting of the Capital Market Committee (CMC). The CMC is the consultative assembly of stakeholders in the capital market. Attendees usually included management and senior staff of SEC, capital market operators (CMOs), representatives of relevant government agencies including the Central Bank of Nigeria (CBN), Debt Management Office (DMO), Federal Inland Revenue Service (FIRS), Investments and Securities Tribunal (IST), National Insurance Commission (NAICOM), National Pension Commission (PENCOM), and Financial System Strategy 2020 (FSS2020). The weekend’s meeting had more than 345 capital market operators and stakeholders in attendance.

    SEC stated that it had drawn useful lessons from the previous banking recapitalisation exercise and would use this experience to issue “appropriate guidelines to facilitate an efficient capital raising process in the present exercise”.

    The apex capital market regulator stated that it was committed to a process that will ensure speed, fairness, and good market conduct.

    “The SEC is collaborating with the Central Bank of Nigeria (CBN) and other relevant agencies to ensure a smooth process.

    “The capital market is strong, efficient and resilient. Over the past few quarters some large companies have raised significant financing from the market signifying the depth and ability of the market to provide such financing. We are confident of the ability of the market to provide the needed funds in the banking recapitalisation,” SEC stated.

    The CMC reiterated its dedication to propelling Nigeria’s economy forward and ensuring that the capital market remains a veritable platform for financing government and businesses.

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    “The CMC eagerly anticipates continued collaboration with stakeholders in propelling sustainable economic growth and prosperity, thereby positioning the Nigerian capital market as a beacon of opportunity for investors and enterprises alike,” the meeting concluded.

    The meeting also expressed its support for the CBN in its efforts at strengthening the naira and combating inflation.

    The meeting noted that in line with the government’s economic agenda and in direct support for the federal government’s infrastructure development goals, SEC had approved five infrastructure fund shelf programmes totaling N1.5 trillion.

    Also, the Commission has supported the growth of the fund management industry with approvals N18.2 billion new mutual funds and N17.60 billion discretionary and non-discretionary investment products.

    Experts and other stakeholders had underlined the imports of the recapitalisation, with most experts expressing optimism that the injection of new capital into banks would support national economic growth.

    Experts who spoke with The Nation included Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe; Managing Director, AIICO Capital, Mr Femi Ademola; Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf; President, Association of Capital Market Academics in Nigeria, Prof. Uche Uwaleke and Managing Director, HighCap Securities, Mr. David Adonri.

    Experts agreed that considering the increase changing dynamics in the banking sector and the overall economy since the last recapitalisation, it has become necessary to strengthen the banks’ financial positions. However, they differed on the definition of new minimum capital by the apex bank, which excludes reserves and narrows the relevant capital to share capital and share premium.

    They also agreed that the extended timeline till 2026 provides ample opportunity for banks to meet the capital requirements without resorting to forced options.   

    Amolegbe said the peculiar definition of minimum capital by the CBN implies that the banks will need to raise fresh funds, because if retained earnings of some of the banks had been allowed, they may not even need to come to the market at all in order to meet the new requirements.

    “We now have a situation where virtually all the banks have about 50 per cent of requirements and they will all on aggregate need a cumulative of more than N2 trillion of fresh capital to remain in business. We expect significant capital market activities in the next 24 months,” Amolegbe, a former president of Chartered Institute of Stockbrokers (CIS) said.

    Ademola, a chartered financial analyst, said the changes in the economy, banking sector and particularly foreign exchange (forex) dynamics underlined the imperatives for the recapitalisation.

    He however noted that while the announcement of recapitalisation in itself is not unexpected, the exclusion of additional tier-1 capital, such as preference shares and convertible debt and the banks’ other reserves, especially retained earnings, is unexpected and creating a serious fuss in the market.

    “Since the retained earnings are distributable earnings that belong to the shareholders, it is expected that it should count as part of capital available to run the business. It is even more confusing when the CBN recently said that the huge incomes recorded by banks due to exchange rate devaluation on 2023 should not be distributed as dividends due to possible reversal of fortunes when the naira strengthens. So, the shareholders are not able to get the incomes as dividends and won’t also be able to recapitalise as share capital. This appears ludicrous since the shareholders would have been asked to provide additional fund to recapitalise the bank should this have been a loss to the bank.

    “One other issue that needs to be clarified is in a situation where a bank meets the share capital and premium required but has negative other reserves thereby making its shareholders fund to be lower than the minimum requirement but in line with the capital adequacy ratio (CAR) requirement. How would this be dealt with? I did not see this in the explanatory notes on the circular,” Ademola said.

    He noted that it was clear that the CBN wants the banks to be freshly capitalized, urging the apex bank to make the recapitalisation exercise a very smooth one without creating any negative investors confidence for the banks.

    “I will suggest that the apex bank conducts a stress test for the banks and estimate what should be provided for from both existing liabilities and contingent liabilities. What is left in the retained reserves of the banks should be capitalised by increasing the share capital and share premium to the required minimum capital. This would be done through the issue of bonuses so as to move the fund from distributable reserves to non-distributable reserves; thus preventing any cash payout from the banks’ capital,” Ademola said.

    Yusuf said there was the need for regulatory authority to ensure that the soundness and stability of the banking sector is preserved and improved upon, especially because of the recent macroeconomic headwinds.

    He pointed out that the last major review of minimum capital requirement was done in 2005 with the minimum statutory capital requirements for banks then pegged at N50 billion for international banks; national banks, N25 billion and regional banks, N10 billion.

    “The real issue is that inflation had weakened the value of money overtime which makes recapitalisation imperative and inevitable.  The essence is to ensure the safety of depositors’ fund, strengthen the stability of the financial system, deepen resilience of the banking system and reposition the bank to support growth. The reality is that the capitalisation requirement has not increased materially in real terms, that is, when adjusted for inflation,” Yusuf said.

    Uwaleke said the recapitalisation was “a welcome development that will help strengthen the country’s financial system and a potential boost to the stock market”.

    He said the calibration of the new minimum capital base on the basis of scope of authorization is better, urging the apex bank to applying a differentiated cash reserve requirement (CRR) according to the category of license instead of a uniform rate of 45 per cent for commercial banks.

    “In view of the young age of non-interest banks in Nigeria, they should be allowed a longer period, say, three years to meet the minimum capital requirements,” Uwaleke said.

    Adonri said the apex bank has justification for the new minimum capital base given the erosion of the value of naira, which may expose Nigerian banks to risks through their foreign operations.

    He however cautioned that extending the policy to local banks with adequate capital may precipitate the kind of over capitalisation that caused unsustainable credit boom that nearly collapsed the economy between 2005 and 2008.

    “A blanket policy like this fails to consider the differentiated risks borne by each bank thus making a risk based supervision a superior approach. It is important to note that it is erroneous to tie the capital base of a bank to its ability to service a large economy because banks have access to deposit liabilities which they form into working capital finance. It is worrisome that this policy has come at a time when banks are in the surplus end of the economy from where capital ought to flow to production which occupies the deficit end,” Adonri said.

    Yusuf said the proposed recapitalisation of banks should be done in a manner that would minimise shocks and disruptions to the banking system and the economy at large.

    He urged the CBN to ensure that all players in the banking sector do not engage in predatory and other anti-competitive practices in the industry on account of the recapitalisation policy.

    “With the current approach and timeline given by the CBN, the risk of banks collapse or hasty mergers and acquisitions should be minimised. It is also laudable that the current categorisation of banks with differential capital requirements has been maintained – international, national and regional.  This is necessary to allow for inclusion and reduce the risk of dominance of the banking space by a few big banks,” Yusuf said.