CBN Gives Banks Three Months To Submit Recapitalization Plan

The Central Bank of Nigeria, CBN has directed some systemically important banks considered too big to fail, that are short of capital to submit recapitalization plans to it by June 13th.

The CBN letter suggest that a few undisclosed banks do not meet the minimum CAR of 10 per cent and 15 per cent for regional/national and international banks, respectively, under Basel II. These banks have been given three months, till 13 June 2015, to submit recapitalisation plans and till 30 June 2016 to implement same.

The letter also affirms CBN’s willingness to support the banks in their bid to raise the required capital.

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Some banks have either been raising funds through rights issues or have approached the international capital market to raise dollar denominated bonds.

CBN last year classified eight Nigerian banks – First Bank of Nigeria Limited (FirstBank), Zenith Bank Plc, Guaranty Trust Bank Plc (GTBank), United Bank for Africa Plc (UBA), Access Bank, Ecobank Nigeria Plc, Diamond Bank Plc and Skye Bank Plc – as systemically important financial institutions (SIFIs) and imposed on them a new set of rules, requiring them to maintain a minimum Capital Adequacy Ratio CAR of 16 per cent.

Renaissance Capital in its note to investors said “On 13 March, the Central Bank of Nigeria (CBN) issued a letter to the banks, extending the implementation deadline for higher capital requirements for systemically important banks (SIBs).

It set a deadline for banks that breach minimum capital adequacy ratios (CAR) under Basel II to submit their recapitalisation plans and execute same”.

It said “One of our key takeaways from the CBN is that a few banks (undisclosed) do not meet the minimum CAR of 10 per cent and 15 per cent for regional/national and international banks, respectively, under Basel II. These banks have been given three months, till 13 June 2015, to submit recapitalisation plans and till 30 June 2016 to implement same”.

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The letter also affirms the Central Bank’s willingness to support any under-capitalised bank and that it may require rapid remedial actions if adequate capitalisation is not restored. “In our view, this extension is a positive development for Nigerian banks as we have previously noted that the pace of implementation of Basel 2 (nine months) and other tighter capital requirements were rather speedy”.

“That said, feed back from our recent international investor road show suggests that given the deteriorating Nigerian macro environment, significant capital-raising events could struggle to attract meaningful international investor participation. We also find international investors increasingly questioning the Nigerian banks’ ability to create value given constraining regulations and weakening macro fundamentals.

”We, however, think that the domestic investor pool or private equity capital could be supportive in some dire instances, drawn by depressed valuations and/or the long-term investment case for the sector.”

“In addition to the above, the implementation of the 1 per cent all-tier 1 capital buffer for SIBs, which raises their minimum total CAR to 16 per cent, has been extended to 1 July 2016, from 1 March 2015. Essentially, while the banks may today or indeed over the next 15 months comply with a 15 per cent minimum CAR, we think the banks need to give serious consideration near term to meeting a 16 per cent minimum CAR requirement and establishing a buffer to support future growth”.

So far Diamond Bank Plc. Has successfully issued $200.0m Eurobond at 9.0, Zenith Bank $500.0 million Eurobond at 6.5 per cent & Access $400million Eurobond:9.5 per cent and also received N40.0bn multilateral loan.