Nigerian banks are under pressure to comply with new capital requirements by March 2026, prompting mergers among smaller institutions like Polaris and Keystone. These banks must substantially increase their capital, with many considering consolidation due to regulatory challenges. Historical trends suggest that mergers could provide a solution for compliance, while the CBN emphasizes the need for stronger banks to support Nigeria’s economic ambitions.
Nigerian banks are navigating new capitalisation requirements set by the Central Bank of Nigeria (CBN), which mandate a significant increase in capital for compliance by March 31, 2026. As a result, tier-1 banks have raised substantial funds exceeding ₦1 trillion, while smaller banks, including Polaris and Keystone, are considering mergers and acquisitions to meet these requirements, which could lead to consolidation across the banking sector.
Polaris Bank currently holds a capital base of ₦50.43 billion as per its 2022 financial statements. To comply with the newly mandated ₦200 billion capital requirement for national banks, it needs to raise an additional ₦150 billion. Additionally, the new regulations exclude retained earnings from qualifying capital, further complicating financial recovery for smaller entities like Keystone Bank, which faces similar capital challenges.
Historically, mergers have been an effective strategy for banks to achieve recapitalisation. A notable example was the August 2024 merger approval of Unity Bank and Providus Bank, which created an entity with a ₦3 trillion balance sheet. The last major recapitalisation wave in Nigeria occurred in 2004, consolidating the number of banks from 89 to 25, showcasing the tendency towards fewer, stronger institutions.
Moody’s credit ratings agency anticipates significant consolidation in the banking sector due to the new capital requirements. KPMG has noted that while challenges such as identity loss and cultural mismatches may deter some banks from merging, the necessity for compliance will likely drive many towards this path. For Polaris and Keystone, merging could be essential for survival and stability in a challenging regulatory environment.
Both banks have faced serious regulatory challenges, especially following the CBN’s decision in January 2024 to dismiss their boards for various infractions, including corporate governance failures. Investigations into ownership structures have linked former CBN governor Godwin Emefiele to potentially illegal acquisitions of both banks, further complicating their operational stability.
The CBN emphasizes the need for a stronger banking sector to support Nigeria’s aim of achieving a $1 trillion economy by 2030. This ambition highlights the necessity for banks with larger capital bases, enabling them to provide more credit to the economy’s individuals and businesses. Major banks like Guaranty Trust and Zenith Bank have already raised substantial capital to meet these new standards.
In response to macroeconomic pressures, Nigeria’s Central Bank has set rigorous new capitalisation standards requiring banks to substantially increase their capital. This move is aimed at reinforcing the banking sector’s stability and resilience as Nigeria moves towards ambitious economic targets. Tier-1 banks have had success in capital raises, but smaller banks are struggling and looking towards mergers as a means to comply with these regulations. The evolving regulatory landscape necessitates robust strategies and adaptations among Nigerian banks.
The ongoing consolidation in Nigeria’s banking sector, driven by new capital requirements from the Central Bank, represents a critical juncture for smaller banks like Polaris and Keystone. With impending deadlines and increased scrutiny, the results of potential mergers could reshape the banking landscape. The drive towards stronger banks aligns with Nigeria’s economic goals, reflecting the CBN’s emphasis on building a more resilient financial sector capable of supporting broader economic growth.
Original Source: techcabal.com
