Merger option looms as CBN hints at recapitalization of banks

There are indications that mergers and acquisitions may happen soon in the financial sector in Nigeria after the Central Bank of Nigeria (CBN) hinted on the need for recapitalization of Deposit Money Banks (DMBs) in the country.

Governor of the apex bank, Dr. Olayemi Cardoso had disclosed that Nigerian banks are not adequately capitalised to meet the need of a $1 trillion economy which the present government is targeting.

To that effect, banks in the country may be forced to merge to meet the recapitalization requirements to be announced by the apex bank as the planned recapitalisation means that DMBs will be required to raise additional capital to meet the demands of Nigeria’s economy.

Speaking on Friday at the 58th Annual Dinner of the Chartered Institute of Bankers of Nigeria in Lagos, Cardoso said: “President Bola Tinubu’s administration hopes to achieve a $1trn economy in the next seven years which banks may not have the funds to meet the requirements of such an economy

“Attaining this substantial target necessitates sustainable and inclusive economic growth at a significantly higher pace at the current level.

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“Considering the projected economic growth, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy.

“It is not just about the stability of the financial system in the present moment… However, we need to ask ourselves, will Nigerian banks have sufficient capital relative to the financial system needed to service a $1trn economy in the near future?

“In my opinion, the answer is no unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As the first step, the Central Bank will be directing banks to increase their capital” he disclosed.

According to reports, Access Bank, Zenith and UBA lead the list of top banks in the country with asset sizes. As of 2023, Nigeria’s Access Bank had assets reaching approximately $33.4 billion.

Other leading banking service providers in the country, namely Zenith Bank and United Bank for Africa (UBA), registered assets adding up to $27.4 billion and $ 24.3 billion respectively, these figures are well short of the $1tr economy targeted by the FG.

The last time Nigerian banks recapitalized was in 2005 when the then CBN governor, Sanusi Lamido Sanusi raised banks capitalization to N25 billion.

That exercise saw mergers and acquisitions among several banks in the country.