Some tier-3 banks in Nigeria are more likely to resort to mergers and acquisitions or downgrade their licences as they struggle to meet the Central Bank of Nigeria’s (CBN) new paid-in capital requirements.
This is according to a report by global credit rating agency, Fitch Ratings.
In March 2024, the CBN announced a new policy increasing paid-in capital requirements for all commercial, merchant, and non-interest banks in the country, in furtherance of efforts to improve financial stability and ensure that banks have sufficient buffers to withstand economic shocks.
Banks are expected to either raise fresh equity, merge with other institutions, or downgrade their licences to meet up and already, the major banks have leveraged shareholder backing and capital markets to generate funds, while third-tier banks have struggled to attract the necessary investments, with many lagging in their efforts.
Fitch said in the report that while first- and tier-2 banks had made notable progress in raising fresh capital, tier-3 lenders had been slow in their recapitalisation efforts, making consolidation or licence downgrades a more likely path to compliance.
It noted, “M&A activity and licence downgrades remain more likely among third-tier banks.”
The Fitch report indicated that many banks had yet to obtain shareholder approvals or finalise their capital-raising strategies.
The credit rating agency warned that unless these banks take immediate steps to secure fresh capital, they might be left with no option but to merge with stronger institutions or downgrade their banking licences to comply with the CBN’s regulatory expectations.
Fitch noted that a stronger capital base would help cushion banks against foreign exchange volatility and regulatory risks while creating more room for business expansion.
However, the agency warned that recapitalisation alone would be unlikely to trigger an upgrade in ratings for Nigerian banks, given broader macroeconomic constraints.
While it could lead to some banks having their outlooks revised to positive, it is unlikely to push any financial institution beyond Nigeria’s sovereign rating of ‘B-’.
