A new report from Ernst and Young has revealed that 17 out of 24 banks might not meet the capital requirement from the CBN if it is increased 15-fold from its current N25 billion.
The report, however, noted that financial soundness indicators show that Nigerian banks are largely safe and resilient as of 2023.
It pointed out that the recent plan by the CBN to increase the capital base of banks will lead to series of Mergers and Acquisition (M&A) as witnessed during the last recapitalisation exercise in 2004/2005, which saw the number of banks drop from 89 to 25.
“While the CBN governor gave no indication as to the magnitude of the proposed hike in the capital base, we have assumed what the proposed increment will be based on three different scenarios underpinned on current macroeconomic conditions. On the back of that, we were able to determine the number of banks (across the three licence types) that may fall below the new minimum capital thresholds.
“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 further said the plan to recapitalise banks is premised upon the recent devaluation of the naira in 2023 and explained that the exchange rate as of 2005 during the last exercise in 2005 stood at N132.9/$ but the naira currently exchange for over N1400/$.
Furthermore, the N25 billion capital base in 2005 amounted to $188.2 million, this has dropped significantly to a mere $18.4 million using the recent exchange rate.
This differs from the position of the CBN Governor, Olayemi Cardoso, who in November 2023, who stated that the planned recapitalisation is aimed at supporting the targeted $1 trillion economy.