CBN, law enforcement agencies to monitor banks in Nigeria for illicit financing of recapitalization
The Central Bank of Nigeria (CBN), alongside law enforcement agencies, will closely monitor the Nigerian banking sector’s recapitalization efforts to prevent the influx of illicit financing into the sector.
A circular signed by Mr Haruna Mustafa, the Director of the Financial Policy and Regulation Department at the CBN, disclosed this.
The circular was addressed to commercial, merchant, and non-interest banks, including promoters of proposed banks, on the new minimum capital requirements for banks.
Banks mandated to do anti-money laundering screening
The circular makes clear the CBN’s intention to apply its robust anti-money laundering regulations vigorously. With the collaboration of relevant law enforcement agencies, the bank aims to ensure that the capital raised during the recapitalisation process is free from the taint of illegality.
Banks are required to conduct comprehensive anti-money laundering screening checks. This includes Know Your Customer (KYC), Customer Due Diligence, and monitoring suspicious transactions to prevent the use of illicit funds in the recapitalisation exercise.
The circular read: “The CBN has robust anti-money laundering regulations which will be strictly enforced, with the active collaboration of relevant law enforcement agencies.
“In addition, the CBN will require all banks to ensure that appropriate and effective anti-money laundering screening/checks (Know Your Customer, Customer Due Diligence and Suspicious Transactions Monitoring, etc) are conducted.”
Additionally, the circular addresses the vetting of new investors and significant shareholders. It emphasizes the need to ensure that only individuals and entities meeting the ‘Fit and Proper’ criteria are allowed to significantly invest in or own shares in banks.
This measure calls for the strict enforcement of background checks on all prospective significant shareholders, as well as directors and senior management staff, to uphold the sector’s leadership and ownership integrity.
The circular added: “The CBN will actively monitor and supervise the recapitalization process to ensure compliance with set guidelines.
“This will involve the conduct of on- and off-site reviews, verification of capital, periodic interventions when necessary and broader stakeholder engagements.”
Likely sources of capital augmentation
The CBN further identified the options available to banks for capital augmentation. These include the issuance of new common shares through public offers, rights issues, or private placements. Banks may also consider mergers and acquisitions or adjusting their license categories to comply with the new requirements.
The circular noted: “Banks may meet the new requirement through the following options: a. Issuance of new common shares (by way of public offer, rights issues, or private placements); b. Mergers and Acquisitions (M&As); or c. upgrade/downgrade of their respective license category or authorization.
“The CBN will issue guidelines to prescribe the definition, options and approaches to meeting the new minimum capital requirement.”
The apex bank added that the paid-up capital and share premium will be the sole components considered for the new capital levels, explicitly excluding Additional Tier 1 (AT1) Capital.
What You Should Know
- In a statement on Thursday from the CBN, commercial banks with international authorization now face a new minimum capital base of N500 billion, a significant elevation that primes them for global financial competitiveness.
- National authorization-holding banks are tasked to increase their capital to N200 billion, while regional banks have been set a threshold of N50 billion.
- Merchant banks are also part of this recapitalization push, with a set minimum capital of N50 billion.
- Non-interest banks operating nationally and regionally must meet capital requisites of N20 billion and N10 billion, respectively.
- In November 2023, the CBN governor, Yemi Cardoso, announced bank’s intention to carry out a fresh round of banking recapitalization for the Deposit Money Banks (DMBs). The planned recapitalization means that DMBs will be required to raise additional capital to meet the demands of Nigeria’s economy.
- A recent report from Ernst and Young estimates that 17 out of 24 banks might not meet the capital requirement from the CBN if it is increased 15-fold from its current N25 billion. According to the report, the recent plan by the CBN to increase the capital base of banks will lead to series of Mergers and Acquisitions (M&A) as witnessed during the last recapitalisation exercise in 2004/2005. The last recapitalisation exercise of the apex bank reduced the number of banks from 89 to 25.
- An analysis by Nairametrics further shows that 11 banks may need to raise a total sum of N2.61 trillion to meet up with the CBN’s target by March 31, 2026.
- Some bankers have criticised the CBN’s decision to omit retained earnings from the share capital calculation in its recent recapitalization guidelines.
