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Recapitalisation: Banks scramble to shore up capital base

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Banks’ borrowing from CBN up by 458% to N57.5trn

 

. Fidelity, Wema, others get regulatory, shareholders’ nod to issue IPOs, rights issues

Deposit Money Banks (DMBs) operating in the country are currently making frantic efforts towards meeting the new capital threshold recently announced by the Central Bank of Nigeria (CBN), Business Hallmark can report.

According to BH findings, no fewer than 10 of the 25 licensed financial institutions have initiated processes towards meeting the CBN’s recapitalization deadline.

BH recalled that the CBN had on March 28, 2024, announced the commencement of the much awaited recapitalization exercise for DMBs, which mandates substantial increases in their minimum capital base according to their scope of operations.

For instance, while commercial banks that want to get international licences will need to upgrade their capital base to N500 billion, national banks must capitalized to the tune of N200 billion, regional banks N50 billion, non-interest banks seeking national licence N20 billion and non-interest banks seeking regional approval N10 billion.

According to CBN’s acting Director of Corporate Communications, Sidi Ali, the apex bank will not allow banks Shareholders’ Fund as part of the new capital requirement, which she insisted must consist solely of paid-up capital and share premium.

Sidi Ali advised the banks to consider raising fresh equity capital through rights issues, private placements, and offers for subscription, as well as pursuing mergers and acquisitions, and that they are all required to meet the minimum capital requirement on or before March 31, 2026, she

“The minimum capital shall comprise paid-up capital and share premium only and shall not be based on the Shareholders’ Fund.

“Additional Tier 1 (AT1) Capital will not be eligible for meeting the new requirement. Despite the increase in capital, banks must ensure strict compliance with the minimum Capital Adequacy Ratio (CAR) requirement applicable to their license authorisation”, the CBN circular had stated.

The announcement that the new capital requirement for financial institutions shall be restricted to paid-up capital and share premium, however, caught stakeholders in the banking industry napping, with most of them erroneously concluding that virtually all the financial institutions, especially, Tier-1 banks, had already surpassed any figure that might be announced by the CBN

They had largely based their assumptions on the belief that the CBN will allow the banks to add their Shareholders’ Fund to their paid-up capital and share premium in the computation of their capital bases.

But with the CBN exclusion of banks shareholders’ fund from the minimum capital requirement, all the bank fell short of the new requirement.

For instance, Zenith Bank’s capitalisation, which stood at N2.07trillion (with the addition of its Shareholders’ Funds) before the apex bank’s new requirement, fell to N270.75 billion. Zenith Bank will need additional N229.26 billion to scale the new requirement.

Also, Access Bank, with a capitalisation of N1.92trillion pre-CBN announcement, is now left with only N251.81billion and will need additional N248.19 billion to reach the new threshold. Likewise, Ecobank, with a post-CBN announced capital base of N353.51 billion, must raise N146.49 billion to remain an international bank; First Bank of Nigeria Holdings Plc with N251.34 billion must raise another N248.66 billion to retain its licence; GTBank with N138.19 billion capital base must scale up by another N361.81 billion; Fidelity Bank with N115.31 billion, will need to raise N384.70 billion; FCMB with N125.29 billion must secure additional N374.71 billion in capital; while UBA will need to raise additional N384.18 billion in addition to its current capital of N115.82 billion.

Also, Stanbic IBTC with N109.26 billion capital, will need to raise N390.74billion. Sterling Bank with N57.15 billion on the other hand, must source for a whooping N442.85 billion.

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However, checks revealed that bank executives, mindful of the ugly fate that befell some of their colleagues, who took the last recapitalization exercise done in 2005 with levity, are not waiting until the March 31st, 2026 recapitalization deadline gets too close before taking action.

Several banks, including Wema, GTB, Fidelity, Access, Zenith, UBA and Ecobank have all kick-started the processes of raising funds to shore up their equity base. One of the banks, which recapitalization process has reached advanced stage is Fidelity Bank.

The bank on June 14 announced that after successfully securing regulatory approvals and the nod from its shareholders, its rights issue and public offer will open for subscription on Thursday, June 20, 2024.

On the same day, the bank will hold a Facts Behind the Offer presentation at the Nigerian Exchange Limited (NGX).

The Joint Issuing Houses for the bank’s Combined Offer, include the Lead Issuer, Stanbic IBTC Capital. Others are Afrinvest Capital Limited, Kairos Capital Limited, Cowry Asset Management Limited, Iron Global Markets Limited, Futureview Financial Services Limited, FSL Securities Limited, Iroko Capital Market Advisory Limited and Planet Capital Limited.

Under the Rights Issue, Fidelity Bank is offering 3.2 billion ordinary shares of 50 kobo each at the ratio of 1 new ordinary share for every 10 ordinary shares held as of January 5, 2024, at N9.25 per share. For its Public Offer, the bank is offering the investing public a total of 10 billion ordinary shares of 50 kobo each at the rate of N9.75 per share.

At the end of the exercise on Monday, July 29, 2024, the bank expects to raise a total of N127.100billion, which falls short of the N385 billion required to meet the N500 billion mark..

On June 14, Wema Bank also announced that it had successfully concluded the first tranche of its recapitalization exercise having secured all relevant regulatory approvals for the allotment of its N40 billion rights issue. The bank’s Managing Director, Mr. Moruf Oseni, who made this known in a statement to media houses on Friday in Lagos, said that Wema Bank launched the N40 billion rights issue in December 2023, as a forward-thinking and pioneering bank, while eagerly waiting the approval from the CBN and the Securities and Exchange Commission (SEC).

Apart from the approval received to go ahead with its planned N40 billion rights issue, Wema Bank also obtained the approval of its shareholders at its 2023 Annual General Meeting (AGM) to raise an additional N150 billion to meet the capitalisation threshold set by the apex bank. The process is expected to be completed between June and December 2025.

“With this remarkable development, Wema Bank has now successfully raised the first tranche of its plan in the minimum requirement laid down by the CBN.

“The bank’s resolve in retaining its commercial banking license with National authorisation and the N40 billion rights issue is a step in that direction.

“Our move to commence our capital raise programme very early demonstrates our push for excellence, and with a strong emphasis on our digital play, we are set to amass more successes in the coming months.

“We are committed to providing optimum returns for every stakeholder and the successful conclusion of this N40 billion rights issue is a bold step in the right direction”, Oseni noted.

Likewise, Nigeria’s biggest bank by deposits, Access Bank, received the blessing of its shareholders at its last AGM held in April to establish a capital raising programme of up to $1.5 billion.

The AGM also approved the raising of another N365 billion as Rights Issue to its shareholders.

The two plans, BH gathered, are awaiting regulatory approvals from both the CBN and SEC.

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Also on the list of banks that their recapitalization process had reached advanced stage, is Guaranty Trust Holding Company (GTCO) Plc.

Shareholders of GTCO at its AGM in May 2024, approved the company’s plan to establish a capital raising programme of $750 million either through public offerings, private placements, rights issues, and/or other transaction modes.

In the same vein, shareholders of First Bank Nigeria (FBN) Holdings have approved the proposal of their board to raise N300 billion.

On the other hand, Stanbic IBTC, Zenith Bank and UBA have also made public their recapitalization plans.

While Nigeria’s most capitalized bank, Zenith Bank, recently got shareholders approval to restructure to a holding company structure and create new 34 billion ordinary shares of 50 kobo each for a multi-layered capital raising process that could see the bank move up to N1 trillion in capitalization,

United Bank for Africa is looking at raising about $200 million from a combination of options, such as Rights Issue and Private Placement, and Stanbic IBTC Holdings Plc planning a N550 billion capital raising process, including a rights issue of N150 billion and a N400 billion debt capital raising.

For FCMB Group Plc, the board has approved several plans to ensure FCMB Limited meets the new minimum capital base of N200 billion for its national commercial banking licence category. The plans include raising equity capital through rights issues and public offer.

Shareholders of the bank are expected to meet soon to give approval to the plans by its directors.

Other financial institutions are also at various stages of going to the market to raise funds to boost equity in the banks.

While the banks expect to source funds through IPO and private placements, it was gathered that they also expect to legally deploy their encumbered shareholders funds in order to achieve the CBN threshold.

According to investment bankers, a large chunk of the jumbo dividends being paid to shareholders, especially, institutional investors, will be ploughed back into the system to meet the new CBN requirement.

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