Mergers and Acquisitions (M&As) that would take place in the process of the banking recapitalisation exercise could lead to a more concentrated banking sector with greater barriers of entry and stronger long-term profitability.
This is according to global ratings agency, Fitch Ratings.
The agency said it foresees a situation where the concentration of the banking sector would be propelled by small and medium-sized banks finding it difficult to raise the new capital requirement leading to mergers and acquisitions.
Fitch, however, pointed out that even if that happens, it would be of no effect to the long-term rating of banks as most Nigerian banks already have a B- Long-Term IDR.
“Some small and medium-sized banks may struggle to raise the necessary capital, leading to increased M&A. This would result in a more concentrated banking sector, with higher barriers to entry, greater economies of scale and stronger long-term profitability,” it said.
The agency also stated that it was not looking forward to banks paying large dividend to shareholders in the hope that it will be reinvested as capital into the banks.
It stated, “We do not expect banks to pay out large dividends for shareholders to reinject as paid-in capital, as we doubt the CBN would grant approval, and, in any case, the dividends would be subject to tax,” it stated.
The agency further pointed out that downgrading of licenses would not play a major role in meeting the new CBN requirement as it would mean banks divesting their international subsidiaries.
About a month ago, the Central Bank of Nigeria (CBN) announced new capital requirements for commercial, merchant and non-interest banks.
