CBN gives banks three months to submit recapitalization plan

The Central Bank of Nigeria 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.

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 letter 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”.

The letter also affirms CBN’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.

According to capital market sources in the bid to meet the CBN new capital requirement for systemically important bank, Diamond Bank completed capital raising of N50.4 billion through a rights issue at N5.80 to prop up its Tier-1 capital in 2014.

Unity Bank last year raised N19.23 billion in a share sale to existing shareholders to bolster its capital position as the central bank implements stricter international regulations. The mid-tier lender sold 38.45 billion shares at 0.50 naira each, the issuing adviser said. The issue was oversubscribed and the bank will refunded excess subscription monies to shareholders. Unity Bank raised the funds to bolster its capital base and finance working capital. Nigeria’s central bank has asked banks to convert to stricter international capital requirements, meaning that several of them would have to raise funds.

Access Bank in October last year sought approval from shareholders to raise N68billion naira via a rights issue to support its lending business. The top-tier bank issued N7.64 billion shares at N8.90 each to existing shareholders. Apart from the right issue, the shareholders also approved that the authorised share capital of the bank be increased from N3 billion made up of 24 billion ordinary shares of 50 kobo each and two billion preference shares of 50 kobo each to N20 billion by the creation of 14 billion ordinary shares of 50 kobo each.

Addressing the shareholders, the Chairman, Access Bank, Mr. Gbenga Oyebode, said, in furtherance of the bank’s objectives of ranking as one of the top three banks in its chosen market, management has identified certain sectors and market segments as growth opportunities for the next five years. According to him, in order to continually support growth over the next five years, enhancement of the bank’s Tier-1 (equity) capital base is critical to the realisation of its objectives.

“The additional capital will enable us to leverage our enlarged balance sheet and optimise returns in a sustainable and risk controlled manner. By approving the rights issue shareholders would be supporting the bank to further consolidate its position as a Tier-1 bank well positioned to achieve its strategic leadership position,” he said.

United Bank for Africa Plc has begun the process of raising Tier 1 Capital by way of a rights Issue. In a public announcement signed by Company Secretary, Mr. Bili Odum, the bank said it has the approval of its shareholders as well as board resolutions authorizing it to raise additional capital by various means, including a rights issue. The notice also stated that the rights issue will be on the basis of one new ordinary share for every 10 ordinary shares held.

The proceeds of the offer will boost UBA’s highly diversified businesses across Africa. (UBA) Plc, Africa’s global bank with operations in 19 African countries including Nigeria, has offices in New York, and Paris, and a subsidiary in London providing broad-based banking services to over 10 million customers globally.

UBA offers a bouquet of banking services and products designed to meet the specific banking needs of its diverse multi-cultural and multi-lingual customer base in the three uniquely different continents. Skye Bank has also raised rights issue.