The backdrop of this initiative is the necessity to weather the storm of prevailing macroeconomic challenges while simultaneously supporting the ambitious goal of achieving a $1 trillion Gross Domestic Product (GDP) by 2026. In the wake of this government policy, it is imperative to explore how it will impact businesses. Will it be a too big dream to achieve? Will the banks be able to raise this capital? What will be the impact of this ambitious policy on businesses?

The impetus for the recapitalisation stems from multiple factors. Chief among them is the adverse impact of naira devaluation on the capital reserves of banks. As the value of the national currency depreciates, it exerts downward pressure on the capital base of financial institutions. Moreover, the envisioned $1 trillion GDP target necessitates a robust banking sector capable of providing substantial financial support to various economic endeavours. By fortifying banks' capital buffers, the CBN aims to instill confidence in the financial system, fostering stability and sustained growth.

Underpinning the recapitalisation is a fundamental shift in the composition of regulatory capital. Previously, regulatory capital encompassed shareholders' funds, subject to a minimum threshold set by the apex bank. However, the revised framework restricts regulatory capital to paid-up capital, comprising only share capital and share premium. This adjustment streamlines the capital assessment process, focusing on tangible equity contributions while excluding components such as retained earnings and additional tier 1 instruments.

Also, the newly established banks are mandated to adhere to the revised capital requirements as a precondition for securing banking licenses. Existing banks and those with approval-in-principle are granted a 24-month transition period, commencing on April 1, 2026, to augment their paid-up capital. Strategies for meeting the stipulated thresholds encompass avenues such as capital injections through private placements, rights issues, or offers for subscription, as well as mergers, acquisitions, and adjustments to licensing authorisations. Banks falling short of the prescribed minimum are required to furnish the CBN with remedial plans by April 30, 2024, outlining measures to bridge the deficit.

This proposed recapitalisation is poised to catalyse a significant influx of capital into the banking sector, potentially amounting to approximately ₦4 trillion. This infusion of funds is pivotal for fortifying banks' financial positions, enhancing their ability to absorb shocks, and underpinning sustainable growth. However, the exclusion of retained earnings from regulatory capital computation may mitigate the magnitude of capital inflows, possibly reducing the projected infusion.

From a broader economic perspective, the recapitalisation exercise holds far-reaching implications for businesses across diverse sectors. By bolstering the capital base of banks, the initiative will stimulate credit extension to businesses, fostering investment, expansion, and innovation. Enhanced access to finance will augment the operational capabilities of enterprises, propelling economic activity and contributing to GDP growth.

It will also lead to sectoral resilience. Amidst the challenges posed by currency devaluation and economic volatility, the recapitalisation reinforces the resilience of key sectors. Industries reliant on credit financing, such as manufacturing, agriculture, and infrastructure development, stand to benefit from increased lending support, thereby fortifying their competitiveness and sustainability.

The restructuring of regulatory capital and the ensuing capital injections may precipitate market realignments, including mergers, acquisitions, and strategic alliances among banks. Such developments could reshape the competitive landscape, influencing market share dynamics, product offerings, and customer service standards.

This also calls for a realignment of business strategies to prepare them for the new policy. Businesses interfacing with the banking sector must adapt to evolving regulatory requirements. Compliance with enhanced capital adequacy norms and prudential guidelines becomes imperative, necessitating adjustments to financial planning, risk management practices, and investment strategies.

Lastly, recapitalisation presents opportunities for investors to participate in capital raising exercises, such as private placements and rights issues. Additionally, mergers and acquisitions within the banking sector may engender investment prospects, with the potential for value appreciation and dividend income.

The Central Bank of Nigeria's recapitalisation initiative heralds a transformative phase for the country's banking sector, underpinned by the imperative of fortifying financial resilience and supporting economic growth aspirations. While the transition may pose challenges and necessitate strategic adaptations, the overarching objective remains the consolidation of a robust, stable, and dynamic banking ecosystem. By aligning regulatory frameworks with contemporary economic realities and fostering an environment conducive to sustainable development, businesses can chart a path towards enduring prosperity and financial inclusivity.

Research & Advocacy Department,