60 Days to Banking Sector Recapitalisation Deadline

Obinna Chima, Editor, THISDAY Saturday

EDGY OPTIMIST By Obinna Chima

With only 60 days left to the deadline for Nigeria’s banking sector recapitalisation, the sector is gradually entering a decisive moment that will separate the prepared from the pretenders.The Olayemi Cardoso-led Central Bank of Nigeria (CBN) had, on March 28, 2024, announced a two-year bank recapitalisation exercise which commenced on April 1, 2024. The 24-month timeline for compliance ends on March 31, 2026. The upward capital revision is expected to ensure that Nigerian banks have the capacity to take on bigger risks and stay afloat amid both domestic and external shocks. It also means an increased liquidity position of banks, which will help broaden their loss-bearing capabilities.

Specifically, the recapitalisation exercise requires a minimum capital of N500 billion, N200 billion, and N50 billion for commercial banks with international, national and regional licences, respectively. Before the new capital requirements were announced, many banks were operating with low capital levels despite the huge profits they were churning out, compared with their peers on the continent. For instance, commercial banks with international licences were only required to hold a minimum capital base of N25 billion. In today’s value, N25 billion is now worth only about $17.5 million, due to the depreciation of the Naira. This leaves Nigeria’s banking system with very little cushion to absorb economic shocks or to significantly play its intermediation role in an economy that is badly in need of finance.

A commercial bank that decides to go for a regional banking authorisation is entitled to carry on its banking business operations within a minimum of six and a maximum of 12 contiguous States of the federation, lying within not more than three geo-political zones, as well as within the Federal Capital Territory. Also, a bank with national banking licence is entitled to carry on its banking business operations in every state, while those with an international licence are entitled to carry on their banking business operations within all the states of the Federation, as well as to establish and maintain offshore banking operations in jurisdictions of their choice, subject to the approval of the CBN and in compliance with regulatory requirements of the host country.

What this effectively means is that within the various banking licence categories, institutions have clear strategic choices. A bank holding an international licence, for instance, may elect to downgrade if it is unable to raise the required N500 billion, either by divesting some of its offshore subsidiaries or by refocusing on the domestic market as a national bank. Similarly, a bank aspiring to operate nationally but is unable to meet the N200 billion threshold can opt to become a regional bank, limiting its operations to three geo-political zones, representing about half of the country.

This flexibility underscores the regulator’s intent to prioritise sustainability over sheer size, ensuring that banks align their ambitions with their financial capacity. Rather than forcing a one-size-fits-all expansion, the framework encourages institutions to deepen efficiency, strengthen balance sheets, and serve markets they can competently support—thereby reducing systemic risk while preserving stability across the banking sector.

An integral part of the exercise is the definition of qualifying capital, which is specified as paid-up share capital and share premium only, thereby excluding the industry’s significant retained earnings reserves and other forms of capital. Banks are also required to comply with the Capital Adequacy Ratio (CAR) relevant to their licence category while trying to meet the new capital requirements

So far, with 60 days to the deadline, a significant number of banks have already met the minimum capital requirements. As of today, up to 19 banks have met their target, and quite a number of them are undergoing capital verification, and so the number of financial institutions that have complied is expected to increase in the next few days. The CBN has not hidden its resolve to ensure that the capital verification process is strict, to prevent bubble capital from entering the system and to ensure that every single kobo invested in the banks passes the anti-money laundering (AML) test.After the last recapitalisation exercise, banks were awash with fresh capital; however, in the absence of strong risk management frameworks and effective regulatory oversight, the likelihood of misallocating these funds through excessive and risky lending rose significantly.

To guard against such occurrences, Cardoso recently disclosed that the central bank has redesigned its “credit risk framework to enforce stronger governance, greater transparency, and firmer accountability across the sector. We are determined to break the boom and bust cycle that has accompanied past recapitalisation efforts.”Already, the CBN Credit Risk Management System (CRMS) is web-enabled, allowing banks and other stakeholders to dial directly into the CRMS database to render statutory returns or conduct status enquiry on borrowers. Also, the CBN is in the process of integrating the CRMS with other systems operating in the banks to make it more efficient.

“At the same time, we remain vigilant to emerging risks, including cyber threats, credit-concentration pressures, and operational vulnerabilities. These are being addressed through strengthened risk-based supervision and our ongoing transition to Basel III, which will further bolster resilience, improve capital quality, and strengthen liquidity monitoring,” Cardoso explained.Looking ahead, a senior CBN official, who spoke on condition of anonymity, told this writer that the recapitalisation exercise is on course for overwhelming success.

“We expect well over 90 per cent success. One or two banks have already indicated their willingness to downgrade their licence, which should not be seen as a setback. Banking today is no longer driven by brick-and-mortar presence; with electronic banking channels, institutions can effectively reach customers nationwide. As such, operating under a lower licence category is not expected to materially affect their business or service delivery,” the official added.Indeed, this banking sector recapitalisation is significantly important because it will help position banks in the country to be able to undertake big-ticket transactions, infrastructure development, support the African Continental Free Trade Area, and Nigeria’s quest for a $1 trillion economy by 2030.

Additionally, well-capitalised banks are essential in mobilising finance for priority sectors such as agriculture, creative economy, SMEs, enhance innovation, boost financial inclusion, as well as employment opportunities.

With 60 days to the recapitalisation deadline, Nigeria’s banking sector stands at a defining moment that promises stronger balance sheets, improved resilience, and renewed investor confidence. If executed with discipline and clarity, the reform is expected to lay the foundation for a more stable, competitive, and growth-driven financial system.