How recapitalisation of banks will boost economy, by PwC

The Central Bank of Nigeria (CBN) recapitalisation for banks will boost the nation’s economy and improve her financial credibility, a PriceWaterCooper (PwC) report has said.

The apex bank announced a two-year bank recapitalisation process which began on April 1, and is expected to end on March 31, 2026.

The plan requires minimum capital of N500 billion, N200 billion, and N50 billion for Commercial Banks with International, National, and Regional licenses respectively.

Likewise, the CBN also raised capitalisation baseline for Merchant Banks (N50 billion) and Non-interest Banks (National: N20 billion and Regional: N10 billion).

Ahead of Tuesday’s deadline for the submission of recapitalisation plans by banks approaches, the multinational professional services and tax audit company listed these strategic options in its latest publication titled: ‘Recapitalisation response pathways: Thinking outside the box’ released on Wednesday

The report, which was authored by PwC Nigeria’s Partner & Financial Services Industry Leader, Chidi Ojechi; Partner, Deals Advisory, Kunle Amida; Partner | West Africa Strategy & Leader, Olusegun Zaccheaus, said the case for recapitalisation was premised on the economic growth and improved financial stability that this change was envisioned to bring about.

It listed economic growth, financial stability, growth in Foreign Direct Investment (FDI) financial development, and international competitiveness and reputation as some of the obvious implications of recapitalisation.

The report said, for instance, that “Recapitalisation has been linked with higher economic growth through a more robust lending mechanism. It could also boost credit/GDP ratio from 14.3 per cent (as at 2022), which is low compared to sub-Saharan Africa (SSA), 35.8 per cent and UK rate at 130 per cent.”

According to PwC Nigeria, recapitalisation is expected to result in a more stable financial system that is less susceptible to losses, allowing D-SIBs to maintain minimum Capital Adequacy Ratio (CAR) of 15 per cent, and other banks a minimum CAR of 10 per cent.

It also said recapitalisation is expected to attract significant FDI, as the industry looks to raise funds to meet the new recapitalisation requirements. “The strengthened industry position will boost capital markets,” it stated.

PwC explained that “Increasing capital requirements for the banking industry will improve international credibility and positioning. Recapitalisation could enable banks create new markets and customers whilst deepening their financial inclusion play.”

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Raising funds, restructuring and divestment are the three strategic pathways the banks can navigate from the CBN’s recapitalisation mandate.

In the report, the company shares insights into how banks can “think outside the box” in their approach to recapitalisation.

The report recommends that banks can raise funds by injecting fresh capital via private placement, and by seeking funds from pre-selected private investors.

The report, which also highlighted the implications of recapitalisation on the banking industry and the economy, said banks can opt for rights issue by inviting existing shareholders to purchase additional new shares in the bank at a discounted price relative to the current market price.

PwC also said banks can raise debt capital through HoldCo, noting that banks that operate a holding company structure can seek funds by raising debt through their HoldCo which can then be injected as equity capital in the banking subco.

Accordingly, banks, PwC said, can reduce their international Portfolio by setting up an offshore holding company whilst maintaining a local play across their various banking options.

Also, banks can embrace Mergers & Acquisitions (M&A). “Banks can either be acquired by international banks venturing into Nigerian market, acquire other local players, merge with peers, or exit and/or divest portfolio components

“Banks can also realign their licence. They can downgrade or change their existing licences and also expand footprint through non-banking license authorization,” the PwC report said, adding that an exit or divestment is another strategic pathway.”

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