Business
CBN’s N500bn recapitalization saves banks from Eurobond repayment pressure
…Access to repay $1bn in 2026
In a move that analysts describe as both strategic and lifesaving, the Central Bank of Nigeria’s (CBN) recent N500 billion recapitalization policy is set to ease the mounting pressure on Nigerian banks ahead of their looming Eurobond repayments.
The Nigerian banking sector has been under significant stress due to its external debt obligations, particularly Eurobonds maturing between 2025 and 2027. Of particular concern is Access Bank Holdings, which is scheduled to repay a substantial $1 billion Eurobond by 2026. In response, the CBN has directed banks to increase their capital base to a minimum of N500 billion within 24 months, providing a crucial lifeline for lenders to stay solvent and bolster their liquidity buffers.
In April, the apex bank announced a policy requiring commercial banks with international authorization to raise their capital to at least N500 billion, while national banks are mandated to reach N200 billion, and regional banks to N50 billion. This initiative is driven by the urgent need to strengthen Nigeria’s financial system amid rising inflation, naira volatility, and global economic uncertainties that have increased the cost of foreign debt servicing.
Kunle Adetunji, a Lagos-based investment analyst, describes the move as proactive: “The CBN’s action is designed to shield banks from potential external repayment shocks. By building stronger capital bases, banks will have higher buffers to absorb their repayment obligations without destabilizing domestic liquidity or risking credit rating downgrades.
The Eurobond burden
Nigerian banks have over the years raised capital from international debt markets through Eurobond issuances to fund expansion and foreign currency obligations. While this deepened their capacity to lend in foreign currency, it also exposed them to exchange rate risks and refinancing burdens, especially after the naira devaluation in June 2023 and subsequent market volatility that saw the local currency touch record lows of nearly N1,600/$ before stabilising slightly.
Access Bank Holdings’ $1 billion Eurobond, issued in two tranches in 2021 and 2022 at yields of around 6.1% and 9.1% respectively, matures in 2026. In its last investor presentation, the bank reassured stakeholders of its strong capital adequacy ratio and stated that it was proactively building its repayment war chest to meet obligations without strain.
Other banks such as Zenith, Fidelity, and UBA also have significant Eurobond maturities between 2025 and 2027, heightening market concerns about rollover risks should global interest rates remain elevated. However, the N500 billion recapitalization policy is expected to mitigate such risks by expanding equity buffers and reducing the need to refinance Eurobonds at high rates.
Recapitalization mechanics and strategy
The CBN has given banks up to March 2026 to meet the recapitalization threshold, urging them to explore fresh equity issuances, mergers and acquisitions, or rights issues to raise the needed funds. For most Tier-1 banks, analysts believe that retained earnings and moderate capital raising would suffice, while Tier-2 and regional banks may explore strategic mergers to remain competitive.
“Banks like Access, Zenith, GTCO and UBA are already close to or above the new minimum with their shareholders’ funds, but additional capital will create headroom for forex exposure, expansion and loan growth,” said an executive at a Lagos-based investment bank. “For Access, with its repayment of $1 billion Eurobond due in 2026, this policy is timely to avoid liquidity pressures when that bond matures.”
In a notice to the Nigerian Exchange in May, Access Holdings announced plans to raise up to N365 billion via rights issue to bolster its capital position in line with the CBN directive. The late Group CEO, Herbert Wigwe, had earlier indicated that the bank’s growth strategy required capital efficiency to maintain its position as the largest bank by assets in Nigeria and an emerging pan-African financial powerhouse.
Market confidence and economic stability
Market analysts have largely welcomed the recapitalization policy as a catalyst to restore confidence in the banking sector, attract foreign direct investment, and ensure macroeconomic stability. Since the announcement, banking stocks have seen renewed investor interest, with the NGX Banking Index rising by over 30% in two months as shareholders anticipate enhanced capacity for dividend payouts and sustainable growth.
However, some analysts warn that the policy could trigger short-term equity dilution for shareholders, especially for banks that raise capital via public offers. They argue that this could impact earnings per share, but agree that the long-term benefits outweigh such short-term pains.
“This is a necessary trade-off to ensure banking stability,” noted David Eyo, Head of Research at Zenith Securities. “It’s better to have a diluted shareholding in a robust bank than to hold high stakes in an undercapitalized lender struggling to meet external obligations.”
Exchange rate risks and debt refinancing outlook
The cost of refinancing maturing Eurobonds remains elevated in the global market due to sustained tight monetary policy by major central banks, particularly the US Federal Reserve. For Nigerian banks, the situation is compounded by naira depreciation, which increases the naira equivalent of dollar-denominated repayments.
With the CBN now intervening to stabilize the FX market and implementing policies to boost capital buffers, the risk of banks defaulting on Eurobond repayments has been substantially reduced. Access Bank, which has been aggressive in pan-African expansion in the last five years, is seen by analysts as the most exposed to Eurobond refinancing risks among its peers, but also the most proactive in building dollar liquidity buffers.
Policy goals and financial inclusion
The apex bank stated that the recapitalization was not merely to meet external obligations but also to reposition banks to finance Nigeria’s $3 trillion infrastructure gap, drive credit growth to SMEs, and catalyse economic development.
“The recapitalization exercise will ensure Nigerian banks have adequate capital to withstand economic shocks, support inclusive growth, and compete with their global peers,” said a CBN official who requested anonymity as he was not authorized to speak publicly.
Meanwhile, stakeholders say the policy aligns with global best practices. The last major banking recapitalization in 2004 under then CBN Governor Charles Soludo raised the minimum capital base to N25 billion, leading to a wave of mergers that strengthened the sector and shielded it from the 2008 global financial crisis.
Potential mergers and market consolidation
The current policy is expected to trigger another round of mergers, with smaller banks seeking strategic partnerships to survive. Analysts project that Nigeria’s banking sector could shrink from the current 24 commercial banks to about 15 strong institutions by 2026 if market consolidation trends mirror the 2004 experience.
Such consolidation, they argue, will strengthen systemic stability, reduce operational redundancies, and enhance credit capacity to the real sector.
The CBN’s N500 billion recapitalization policy has emerged as both a shield and a sword: shielding Nigerian banks from Eurobond repayment pressure while strengthening their competitive edge and economic development capacity.
For Access Bank, Zenith Bank, UBA, and others with significant Eurobond maturities in the next three years, the policy could not have come at a better time. As market watchers await banks’ capital raising strategies, one certainty remains: the recapitalization will define the future shape, resilience, and relevance of Nigeria’s banking sector in an increasingly globalized financial ecosystem.
