By SpringsNewsNG | February 13, 2025

Fitch Ratings has stated that Nigerian banks are making significant progress in raising core capital to meet the Central Bank of Nigeria’s (CBN) new paid-in capital requirements, reducing the likelihood of major banking sector consolidation.

The credit rating agency noted that most banks are on track to meet the Q1 2026 deadline, benefiting from a recovery in capitalisation following the impact of the naira devaluation. This development is fueling business growth while ensuring regulatory compliance.

CBN’s Capital Requirements and Compliance Options

In March 2024, the CBN introduced new paid-in capital requirements for commercial, merchant, and non-interest banks. Banks have three options to comply:

1. Raising equity capital through new investments.
2. Mergers and acquisitions (M&A) to consolidate resources.
3. Downgrading their licence authorisation to a lower capital threshold.

According to Fitch, most Fitch-rated banks have already made substantial progress, with almost all either having raised capital or formally initiating the process.

Progress of Major Banks

• Access Holdings and Zenith Bank have secured sufficient capital to meet the ₦500 billion requirement for an international banking licence.
• First HoldCo, United Bank for Africa (UBA), and Guaranty Trust Holding Company (GTCO) are taking a phased approach, having raised initial funds and secured shareholder approvals for further capital raising.
• Fidelity Bank and FCMB Group have completed initial capital rounds but will need additional funding to retain their international banking licences. These banks face higher capital requirements relative to their balance sheets and could consider downgrading to national licences, as they each have just one foreign subsidiary.
• Ecobank Nigeria Limited (ENG) and Jaiz Bank needed only small capital injections and have already achieved compliance. However, ENG remains in breach of its 10% capital adequacy ratio (CAR) and is planning additional capital raising.
• Stanbic IBTC Holdings has launched a rights issue to retain its national licence.

Strong Investor Appetite and Decreasing Likelihood of Consolidation

Investor confidence has ensured that most capital-raising efforts have been successful, particularly among first- and second-tier banks. As a result, Fitch believes large-scale banking sector consolidation is now less likely, as most banks will meet capital requirements through capital raising alone.

However, Union Bank of Nigeria (UBN) and smaller third-tier banks have been slower to raise capital.

• Wema Bank has secured shareholder approval to raise capital and plans to launch its process in April 2025.
• Coronation Merchant Bank has received board approval to raise capital.
• UBN and other unrated third-tier banks have yet to confirm necessary approvals, making them more likely to consider M&A activity or licence downgrades.

Impact of Capital Raisings on the Banking Sector

The fresh capital inflows are helping Nigerian banks recover from the impact of naira devaluation, which had pressured capital ratios and increased US dollar credit risks. Strengthened capital buffers will reduce exposure to regulatory intervention, economic volatility, and currency risks, while also providing room for business expansion.

However, Fitch notes that these capital raisings are unlikely to lead to immediate upgrades for banks with Long-Term Issuer Default Ratings (IDRs) of ‘B-’, as their ratings remain constrained by Nigeria’s sovereign rating of ‘B-’/Positive.

Nonetheless, the improved capital positions could lead to positive rating outlook revisions for some banks, particularly if they achieve full compliance with CAR requirements. Union Bank and Ecobank Nigeria Limited, currently rated ‘CCC’, could see upgrades once compliance is restored.

The impact is expected to be more significant for National Long-Term Ratings, which measure the relative creditworthiness of Nigerian banks within the local market.