Legal Informer
Following the publication of a circular on 28 March 2024, the Central Bank of Nigeria has embarked on a pivotal review of the minimum capital requirements for Commercial, Merchant, and Non-Interest banks in Nigeria. With the present economic circumstances, the goal of this upward review is to ensure that financial institutions continue to be able to support the expansion of the Nigerian economy.
The Central Bank of Nigeria Act under section 1 establishes the Central Bank and grants it the authority to regulate and supervise banks including setting minimum capital requirements. In line with the provisions of the new circular, Commercial Banks are now required to have N50 Billion for regional operators, while international operators are now required to hold N500 Billion, as opposed to the previous N10 Billion and N50 Billion respectively. Merchant Banks are now required to hold N50 Billion as opposed to the N15 Billion requirement. National Non-interest banks are required to have a minimum capital requirement of N20 Billion as opposed to N10 Billion while Regional Non-Interest Banks need to have N10 Billion as opposed to the previous N5 Billion.
Banks and Other Financial Institutions Act, 2020 under Section 9 stipulates the powers of the Central Bank of Nigeria to determine the minimum paid-up share capital requirement of banks, and failure to comply with the requirements is grounds for the revocation of such bank’s license. The revised capital requirements by the CBN mark a significant shift in the regulatory landscape that affects banks operating in the country.
To meet the new criteria, banks are forced by higher minimum capital requirements to review their business strategies and explore alternative solutions.
The concerned financial institutions will have 24 months to completely comply with the capital increase as the Apex Bank has fixed the compliance period between April 1, 2024, and March 31, 2026. However, by April 30, 2024, all banks must deliver a detailed plan detailing their approach to compliance to the Director of the Banking and Supervision Department.
Conclusion:
It is projected that by imposing higher capital requirements, these steps will strengthen Nigeria’s banking sector and maintain financial stability. However, some alternative solutions that financial institutions can adopt considering the recent regulatory update include:
- Streamlining their business practices through Mergers and acquisitions
- Downgrading their license to reflect financial capacity and comply with the minimum capital directive.
- Resorting to private placement or right issue as a means of injecting capital into the Banks
Conclusively, with the 2024 Bank Recapitalisation program, a revolution in the banking industry is pending, and by implication, the legal industry must gear up from the regulatory, compliance, transactional, and dispute resolution standpoints to facilitate a successful implementation process.
