Thirty-three banks in Nigeria have met the Central Bank’s new minimum capital requirements, a move expected to bolster lending, support businesses, and reinforce public confidence in the banking system, according to financial experts. The sector remains fully operational, ensuring continued access to banking services for customers across the country.
Speaking in an interview on ARISE News on Thursday, Johnson Chukwu, Managing Director and Chief Executive Officer of Cowry Asset Management Limited, provided insights into the strategic rationale behind the recapitalization and its implications for the economy.
Chukwu explained that the Central Bank of Nigeria (CBN) deliberately excluded retained earnings from the minimum capital computation to ensure banks did not overstate their balance sheets. “The Central Bank said that embedded in those reserves are forbearances that they could not allow the banks to recognize because if you adjust for those forbearances, then the reserves may not actually be as robust as they may look,” he said. Chukwu noted that while some experts criticized the exclusion, the measure is intended to ensure stability and prudence in the banking sector.
He emphasized that the recapitalization is designed to restore operating capital, particularly in the wake of foreign exchange volatility and high inflation. “We saw a major weakening in the balance sheet of banks. The value of foreign currency loans ballooned, and because those values ballooned, they exceeded the single obligor limit of the banks,” he explained. “There was a compelling need for the banks to recapitalize to meet their operating capital requirement.”
Chukwu also addressed concerns that smaller banks might struggle under the new requirements. He explained that banks should operate according to their size and risk capacity. “Banks will do business and assume risk that is commensurate to their capital base. But smaller banks, it’s not a problem in the sense that you will create credit or lend according to the size of your capital,” he said, adding that technology now allows even smaller banks to deliver nationwide services efficiently.
On potential unintended consequences, including job losses, Chukwu argued that the threat is minimal and mostly linked to technological adoption rather than consolidation. “If there are job losses, it won’t be because of consolidation; it will be because of advancement in technology,” he noted. He explained that automation has replaced repetitive low-value tasks, but high-value decision-making roles remain intact.
Regarding the effect of recapitalization on the competitive landscape, Chukwu highlighted that the “big five” banks—First Bank, UBA, GTBank, Access Bank, and Zenith Bank—remain strong, but other banks are also expanding internationally. “In terms of narrowing the gap, if you look at balance sheet size, you may see those leading in deposit base and not necessarily in profitability,” he said. “Others are growing and positioning themselves to compete at the top.”
Chukwu also underscored the CBN’s broader goal of promoting prudence in dividend distribution. “I was one of those that spoke out against the exclusion of reserves,” he said. “The level of your retained earnings is a measure of your level of prudence. But the Central Bank’s position was that some banks had forbearances embedded in those reserves, which could not be recognized immediately.”
He highlighted that recapitalization also ensures compliance with risk-based capital requirements. For instance, smaller regional banks with a 50 billion Naira capital base must limit their exposure compared to national banks with 200 billion Naira. “Take for instance the so-called single obligor limit. Banks must budget according to their weight,” Chukwu explained.
Chukwu concluded by emphasizing the overall benefits of recapitalization for Nigeria’s banking sector. “The goal is to raise about 3 trillion Naira in a period of two years, and over 600 billion Naira came from local investors. This strengthens confidence, boosts lending, and supports businesses,” he said.
Triumph Ojo
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