A recent report suggests that the Central Bank of Nigeria might instruct commercial banks with international banking licenses to increase their capital base to over N900bn.
This follows a statement from the CBN Governor, Olayemi Cardoso, a few months ago, indicating the need for banks to raise more capital to support the government’s goal of growing the economy to $1tn.
CardinalStone Securities’ Banking Sector FY 2024 Outlook predicts that Nigerian banks may be required to augment their capital, with estimates ranging from N181.85bn for regional banking licenses to N909.27bn for international banking licenses.
The report bases these projections on the possibility of the CBN returning to the capital-to-GDP ratios in dollars set in 2005, ranging from 0.04% for regional banks to 0.22% for commercial banks.
However, the report acknowledges that achieving a $1tn economy in seven years might necessitate even higher capital base requirements.
It highlights a significant decline since the 2005 recapitalization exercise, with current requirements ranging from 0.00% to 0.01% of GDP in dollar terms as of 2024.
The report suggests that banks may need to raise their capital base to meet the range of N181.85bn (for regional banks) to N909.27bn (for international banks), considering the 2024 real GDP of $472.6bn and an exchange rate of N841.61/$ as of December 20, 2023.
While most banks are expected to meet this challenge, achieving the ambitious $1tn economic size goal might require even higher capital base requirements.
The report concludes by stating that monitoring developments in this space will be crucial to understanding the final decisions of the apex bank and the specifics of the directives and timelines involved.
