Recapitalization: Jobs losses loom as Nigerian banks battle to escape extinction

There is panic in the Nigerian financial sector over massive job losses as banks battle to meet the recently announced minimum capital requirements by the Central Bank of Nigeria.

The National President of the Association of Senior Staff of Banks, Insurance and Financial Institutions, Olusoji Oluwole, expressed these concerns during an interview with Channels Television on Monday.

He said the Association had already informed the CBN and the Ministry of Labour about the impact of the recapitalization exercise on workers in the sector.

“We are very aware of what happened in the past during such recapitalization programmes, the last being in 2005. We knew that some banks had to pull it through themselves, some through mergers, others through acquisition.

“It has an impact on the employment of workers; because of that experience, we have proactively acted by informing the Central Bank of Nigeria and the Ministry of Labour of the likelihood of the programme on our members.

“When things like this happen, there are bound to be jobs lost. We expect that there will be a lot of fairness in the actions of the banks and to ensure that our members are well protected and compensated”, he said.

DAILY POST recalls that the CBN raised the minimum capital requirements for commercial banks with international authorization, National Spread Regional, Merchant Banks, National Non-Interest Banks, and Regional Non-interest between 100 and 900 per cent last Thursday.

What the 2024 Recapitalization exercise means

With the move, the CBN proposed to achieve the $1 trillion economy of President Bola Ahmed Tinubu’s government.

Also, the bank said the exercise would engender the emergence of healthier banks with the capacity to underwrite larger levels of credit/loans.

The development came nearly 19 years after the apex bank had last conducted its recapitalization exercise in 2005 under former President Olusegun Obasanjo and Prof Charles Soludo as CBN governor.

According to reports, over 5,000 staff members of affected banks such as Oceanic bank, Fin Bank, Spring Bank, Union Bank, Intercontinental Bank, Stanbic IBTC, and others lost their jobs.

This is why the announcement of the 2024 recapitalization programme sent a shockwave across the country’s banking sector.

Banks’ available options

CBN had given all the banks 24 months, starting from April 1, 2024, to kick the ground running in meeting the new set capital benchmark.

Within the set period, Nigerian banks have been boxed into Injecting fresh equity capital through private placements, rights issue/or offer subscriptions, mergers and acquisitions( M & As) and Upgrades or downgrades of license authorization options.

It is left to banks to explore either option to escape extinction.

Controversy clause

Unlike in the 2005 recapitalization exercise, CBN placed a caveat that 2024 minimum capital requirements shall only comprise paid-up capital and share premiums, ruling out the shareholders’ funds.

The non-inclusion of the Shareholders’ Fund had raised dust among the sector’s players.

In his statement reacting to the development, Johnson Chukwu, CEO of Cowry Assets Management Limited, faulted the exclusion of retained earnings and advised the CBN to align the new capital requirements with industry dynamics to facilitate a seamless transition.

Will Nigerian Banks Survive 2024 Capitalization?

With the development, the top ten Tier 1 and 2, namely Guaranty Trust Bank, Zenith Bank, United Bank of Africa, Access Bank, First Bank of Nigeria, EcoBank, Stanbic IBTC, First City Monument Bank, Fidelity, Sterling and others, will have raised over N3.3 trillion minimum capital base in 24 months.

Meanwhile, Ernst and Young, a global financial services company, had earlier predicted that about 17 banks would survive recapitalization.

“In a worst-case scenario, i.e., given a capital multiplier of 15, about 17 out of 24 banks would not meet the new minimum capital,” it said.

Financial Experts Reactions

Speaking to DAILY POST on Monday, a renowned economist and former President and Chairman of the Council of Chartered Institute of Bankers, Prof Segun Ajibola, said many banks may be unable to meet the current requirements, especially the family-like banks in terms of ownership and operation.

The economist said that a successful banking recapitalization exercise could benefit the Nigerian economy if well implemented.

According to him, with the exercise, Nigeria’s domestic economy will enjoy the patronage of existing and new local and foreign investors to meet the capital requirements. However, he said the country needs to be mindful of how the ownership of Nigerian banks can be ceded to foreign interests.

“The recapitalization of Nigerian banks by their owners is no doubt an exercise that is long awaited due to the current value of Naira, and by extension the size of the bank’s financial position, when viewed globally. The current value has constrained the banks’ capacity to handle large ticket deals even within the domestic economy.

“Many banks may be unable to meet the current requirements, especially the family-like banks in ownership and operation. There may be voluntary and involuntary mergers and acquisitions.

“One only hopes that the situation of 2005, when banks formed ”unholy alliances” and strange bedfellows, those with conflicting orientations, cultures and governance practices, were forced together to save their shareholders from total loss, etc. Some banks may seek downgrades as a way out of pollution and dilution of their shareholders.

“It remains to be seen if the domestic economy can cough out the funds required to meet the required capital.

“However, the flow of foreign funds to the Nigerian economy by the existing and would-be shareholders will be a welcome development if it happens.

“There is a need for the authorities to assure potential investors of stable and consistent investment and exchange control policies for a safe and predictable investment environment, among others.

“The definition of what constitutes capital under the Basel Accord is shifting from Tier I to Tier III. As said earlier, it is hoped that the domestic economy will enjoy the patronage of existing and new local and foreign investors to meet the capital requirements.

“Again, one is mindful of the extent to which the ownership of Nigerian banks can be ceded to foreign interests.

“A successful banking recapitalization exercise can have a beneficial impact on the Nigerian economy. It can help to rejuvenate the overall growth of different sectors of the economy through appropriate, timely funding of economic activities.

“Yes, it has the likely effect of crowding out investments in other suitable areas of the economy. It can lead to some job losses. But the overall benefits outweigh these side effects if successfully executed”, he told DAILY POST.

On his part, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, CPPE, Dr Muda Yusuf, said that the real issue is that Nigeria’s soaring inflation has weakened the value of money over time, which makes recapitalization imperative and inevitable.

He, however, urged that the exercise be done to minimize shocks and disruptions to the banking system and the economy.

Yusuf added that the apex bank should caution all players in the banking sector against predatory and other anti-competitive practices in the industry because of the recapitalization policy.

He told DAILY POST: “The last major review of the minimum capital requirement was done in 2005, some 18 years ago. That was under President Olusegun Obasanjo, with Prof Charles Soludo as CBN governor.

“But since then, the value of the minimum capital has been significantly eroded by inflation. For instance, the official exchange rate in 2005 was about N130 to the dollar.

“This meant that the N25 billion for a national bank, for instance, was equivalent to $192 million. The naira equivalent today is about N250 billion. The International Banking license would be about $384 million, an equivalent of about N500 billion.

“The capitalization requirement has not increased materially in real terms when adjusted for inflation.

“The real issue is that inflation has weakened money’s value over time, making recapitalization imperative and inevitable.

“The essence is to ensure the safety of depositors’ funds, strengthen the financial system’s stability, deepen the banking system’s resilience and reposition the bank to support growth.

“Reports from the Central Bank of Nigeria attest that Nigerian banks have good soundness indicators. The industry Capital Adequacy Ratio as of January was 13.7 per cent, above the prudential threshold of 10 per cent.

“The Non-Performing Loans as a ratio of total loan assets was 4.81 per cent as against the prudential threshold of 5 per cent, which is also positive. The liquidity ratio is 40.14 against the prudential minimum of 30 per cent, which also reflects a healthy position.

“The summary is that based on the financial soundness metrics, Nigerian banks are judged to be generally healthy.

“However, this does not diminish the need for regulatory authority to ensure that this soundness and stability are preserved and improved, especially because of the recent macroeconomic headwinds.

“This, perhaps, is what informed the current policy of the CBN to review the capital base”, he stated.

Similarly, the CEO of SD & D Capital Management, Mr Idakolo Gbolade, said the recapitalization exercise will allow Nigeria to maintain its leading role in the African continent.

“The recapitalization of banks in categories is long overdue”, he told DAILY POST and advocated for the expansion of our economy.

“The time frame is very adequate as well. Some international banks have already envisaged this process and have started making provisions early enough. Banks that cannot meet the new capital requirements have mergers and acquisitions options.

“Nigeria has the highest GDP in Africa, and for us to maintain that position and operate a trillion-dollar economy, the banks must be adequately capitalized.

“A trillion dollar economy must have local capacity to initiate and execute million dollar transactions locally without foreign intervention in key areas of development like oil and gas, steel production, mining, mega construction projects and Public Private Partnerships with the government.

“This can only materialize if we have adequately capitalized banks that can rise to the occasion. Nigerian banks also need to take pride in Africa regarding capitalization because Nigerian banks are not among the most capitalized in Africa.

“Therefore, this new recapitalization policy will adequately position our banks for the emergency economy in Nigeria or Africa and worldwide.

“The exclusion of shareholders’ funds as additional Tier 1 capital shows the CBN wants to distinguish fresh funds from existing funds which could be subject to regulatory infractions because shareholders’ funds is not a statutory capital base”, he told DAILY POST.