-Emmanuel Abara Benson

Nigerian banks have until April 2026 to recapitalize, as recently mandated by the Central Bank of Nigeria (CBN). Already, some of them have submitted their recapitalization plans, and it appears they are resorting to the capital market to raise money through right issues, private placements, and public offers. GTCO Plc is among the first to launch a public offer, seeking to raise N400 billion. Zenith Bank and others have also disclosed their capital-raising moves.

In the past, the Nigerian capital market has been instrumental in banks’ recapitalization efforts. However, given the current state of the economy, one cannot help but wonder if they will succeed this time. Also, are bank shares enticing enough for investors at the moment? We will get to these questions shortly.

Why is this recapitalization necessary?

In a press statement dated March 28, the apex bank explained that the recapitalization mandate became necessary due to ‘prevailing macroeconomic challenges’ in Nigeria. The planned recapitalization is intended to help banks become more resilient, solvent, and better positioned to support the Nigerian economy, especially at this critical growth phase.

As you may know, the economy has been struggling. A slew of reforms by President Bola Ahmed Tinubu, including devaluations of the naira and the removal of petrol and electricity subsidies, have inevitably slowed economic growth, leading to Nigeria dropping from its long-held top spot of Africa’s leading economies in terms of GDP. The high inflation rate (currently at 34.2%) is another major source of worry. Despite these obvious challenges, the CBN is within its right to ensure that commercial, merchant, and non-interest Nigerian banks are well prepared to support economic recovery.

But the stakes are quite high

One cannot help but notice that the CBN has set the bar very high this time. Before now, the minimum capital requirements for Nigerian banks ranged from N5 billion to N50 billion, depending on their license grades. The upward review now requires that banks with international authorization must have a minimum capital requirement of N500 billion starting April 2026, up from N50 billion. Similarly, non-interest banks with regional authorization, which were previously required to have a minimum capital of N5 billion, will henceforth, be required to maintain N10 billion worth of minimum capital. Perhaps, the most interesting part is that the banks can’t use any of their shareholders’ funds to meet the requirement.

This begs the question – why are the stakes so high, especially given that the economy is tough right now? Isn’t the apex bank concerned that Nigerians may not have enough money to buy into any public offers by banks? Well, according to some experts we spoke to, the CBN knows exactly what it is doing.

“The CBN is using this exercise to increase FX inflows into the country, thus propping up naira-denominated assets,” says financial market analyst, Olumide Adesina. “As you know, the country has been struggling with FX instability for quite some time. So, the apex bank is trying to create incentives aimed at stabilizing the financial ecosystem. How will this work, you ask? Here is how – there will be dollar inflows into the country from foreign investors interested in participating in the public offers from banks. The more dollar inflow, the better it is for the economy.”

It’s important to note that foreign investors have always been interested/participated in the Nigerian capital market. In April this year, the total transactions by foreign investors increased by 28.19% to N120.83 billion, up from N94.26 billion.

Do Nigerian investors have the money to buy the bank shares?

Everyone in Nigeria knows that the economy is tough right now. The cost of living has skyrocketed and millions of people can barely afford to eat well, much less save or invest. Hence, the question of whether Nigerian investors can afford to buy into these public offers by banks. Well, surprisingly, the answer is yes, they can. At least, that’s according to Ugochukwu O.C, the Founder and Chief Analyst of Nairametrics. He explains:

“Money supply in the economy is above N90 trillion. Regardless of how difficult things are, there’s still a lot of money out there. So, people can always buy. And when it comes to equity investments, there are no minimum limits per se. So, you can invest N10, 000, N20, 000, N80, 000, N100, 000, or N1 million. It’s important to point out that many of those who are able to buy these shares are also mostly lower-upper middle-class Nigerians. They can afford it.

“Let’s remember that this is a naira investment. N1 million now is less than $1, 000. Ten years ago when we had this same kind of exercise, $1, 000 was just slightly under N200,000. So, you see that N1 million is not that much for a lot of people to afford. The economy is hard, yes. Regardless, we think that people can still afford to invest. We expect the banks to raise over N4 trillion through this exercise over the next two years from the over N90 trillion in money supply in the economy. They should be able to mop up that much.”

He further reiterated Olumide’s earlier point about the CBN’s effort to prop up the naira using this recapitalization exercise. According to him, there is so much cash (naira) in the economy chasing a few dollars. So, the apex bank is trying to mop up the cash so that the banks can re-direct said cash into the wider, more productive economy.

But are Nigerian banks’ fundamentals appealing enough?

It’s one thing for banks to launch public offers and another thing for investors to actually be interested in buying into them. As of half-year 2024, no Nigerian bank was among the top ten best-performing Nigerian stocks. What does this say about the banks’ appeal? We posed this question to Ugo and this was his answer:

“Bank fundamentals are strong, quite better than they were some years ago when they went through this same exercise. Banks have been declaring good profits. Their margins are okay. Their returns on average equity are strong. In terms of their liquidity ratio, capital adequacy ratio, and all the ratios that are regulatory-required, they are all looking strong. So, yeah, the fundamentals are good, even though I don’t think a lot of the people buying the shares even bother to examine fundamentals. A lot of them are not that savvy, really. But they do know a strong bank when they see one. They are also buying because they see opportunities/potential for capital gains and dividend-earning.”

In the meantime, the public offers, right issues, and public placements are still up for grabs. According to those with knowledge, investors are buying into them. More than 20 Nigerian banks need to raise money through these exercises by April 2026. The ones who cannot raise enough money to meet the new minimum capital requirements will either have to sell their assets, merge with other banks like Providus and Unity banks are in the process of doing, or downgrade their license grades. It’s interesting to see what the outcome of the exercise would be.