Nigeria: Bank Recapitalization to Boost Capital Market, Says ASHON Chair

Sam Onukwue, Chairman of the Association of Securities Dealing Houses of Nigeria (ASHON), has stated that the newly proposed capital requirements for banks will revitalize the primary segment of the Nigerian capital market.

On March 28, the Central Bank of Nigeria (CBN) announced new capital base requirements for banks, ranging from N200 billion to N500 billion, depending on the bank’s authorization level. The CBN has given lenders two years to meet these new requirements, aiming to position Nigerian banks for global competitiveness and to align them with the demands of the African Continental Free Trade Area.

Onukwue commended the CBN’s initiative, noting that the increasing risks faced by banks, exacerbated by macroeconomic challenges, necessitated a stronger capital base. He added that this would not only enable banks to absorb unforeseen losses but also prepare them to support Nigeria’s envisioned $1 trillion economy in the next seven to eight years.

“I believe that the Central Bank of Nigeria has taken the right step to ensure our banks can compete in the global market, including within the African Continental Free Trade Area. With current inflation and exchange rates, it has become nearly impossible for our banks to operate according to the new global minimum capital thresholds.

“Moreover, the level of risk that banks bear today has significantly increased due to current macroeconomic conditions. I also believe the CBN is positioning banks to be able to finance the anticipated $1 trillion economy in the next 7-8 years.

“Given this context, I am confident that the CBN’s decision to base the new capital requirements on each bank’s authorization level is fair,” he explained.

Onukwue noted that the primary market’s inactivity had been due to economic slowdowns and companies’ reluctance to launch initial public offerings (IPOs) amid fears of under-subscription.

“The primary market has been relatively inactive over the years because of the general economic lull. Potential companies that would have floated IPOs were hesitant due to fears of under-subscription.

“To worsen the situation, many investors have lost money in the primary market because some companies failed to list their shares in the secondary market after raising capital in the primary market. However, with the directive on banks’ recapitalization, activities are expected to rebound in the primary market,” he posited.

Commenting on the Securities and Exchange Commission’s (SEC) new rules for the primary market, Onukwue praised efforts to curb abuses in fundraising, stressing that stringent regulations, including hefty fines for non-compliance, would protect investors and ensure that capital raising in the primary market is conducted transparently and efficiently.

SEC plans to release a framework to guide the capital market in the proposed recapitalization exercise by banks. Acting Director General of the SEC, Emomotimi Agama, disclosed that the commission is prepared to communicate with various sectors of the capital market to ensure that all outstanding matters are settled in the best interests of the market.