Proposed Banking Sector Recapitalization: How prepared are the listed banks?

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Recently, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, unveiled his plan for the second term in the office. Among others, the CBN’s plan to recapitalize the banks was the major highlight of the speech and this brought back the memory of the 2004 banking sector recapitalization wherein the banking sector minimum capital base was revised up from N2.0bn to N25.0bn. Notably, the most rational basis for newly planned recapitalization can be linked to the drop in the value of the naira against the dollar (N100/$ in 2004 vs. N360/$ currently) which had weakened the current minimum capital base of banks in dollar terms from c. $250.0mn in 2004 to c. $69.4mn today.

Proposed Banking Sector Recapitalization: How prepared are the listed banks? - Brand Spur
Source: Corporate Financials, United Capital Research

In our analysis, for the CBN to restore the capital base to c.$250.0mn, the dollar equivalent in 2004, the monetary authority will need to revise upward the current capital base from N25.0bn to at least N90.0bn ($250mn at N360/$). Certainly, most of the listed banks are in a good position to withstand a recapitalization exercise, if the exercise is merely to reflect the current exchange rate environment.

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However, Unity Bank and Wema Bank will need to shore-up their shareholders’ fund which is below N90.0bn. Sterling Bank is just some level above the estimated N90.0bn. Also, unlisted players such as Keystone, Polaris and Heritage may be affected. Overall, we believe the newer or recently licensed banks will feel the heat the most.

 

United Capital Plc Research (UCR)