Bank recapitalisation, others key to trillion-dollar Nigerian economy

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The Director General of the Securities and Exchange Commission (SEC), Dr. Emomotimi Agama has said that Nigeria needs to address critical sectors as well as leverage a recapitalised banking sector to unlock its potentials and achieve a trillion-dollar economy.

Agama stated this at a Forum on steps towards ongoing banks recapitalisation in Abuja.

According to the DG, the nation needs to diversify the economy beyond oil exports, invest in infrastructure, human capital and innovation, enhance the business environment and reduce regulatory hurdles as well as promote financial inclusion and access to credit for Small and Medium Enterprises (SMEs), and individuals.

He said, “Bank recapitalisation refers to the process of increasing a bank’s capital to meet regulatory requirements, improve financial stability, and enhance lending capacity.

“Banking recapitalisation can indeed play a significant role in catalyzing a trillion-dollar economy through the capital market. The capital market plays a crucial role in this process by providing banks with access to various financing options, such as Equity financing, where Banks can issue new shares to raise capital from investors; Debt financing, which entails Banks issuing bonds or other debt securities to raise capital from investors, and Rights issues, where existing shareholders can purchase additional shares at a discounted price.

“Recapitaliation through the capital market can help banks meet regulatory capital requirements, improve capital adequacy ratios, increase lending capacity, enhance financial stability, restore investor confidence, enhanced investor confidence and better risk management.”

The SEC Boss said that a recapitalised banking sector can lead to increase lending to key sectors like agriculture, manufacturing, and infrastructure, driving economic growth, enhance banks’ ability to underwrite large-ticket transactions, supporting big projects and industries as well as attract foreign investors, thereby boosting capital inflows and deepening the capital market.

Dr. Agama pointed out that recapitalisation could also encourage listing of banks and other companies on the Nigerian Exchange Limited (NGX), increase market capitalisation and foster a stable financial system by reducing systemic risk and promoting economic stability.

He added that the Nigerian Exchange platform designed to streamline public offerings and Rights Issues in the market is a viable channel for boosting investments and would assist in the attainment of a better economy.

The SEC DG further stated that recapitalisation can also have challenges, which includes share price dilution, increased debt servicing and regulatory hurdles among others.

The SEC recently released a framework which aims to ensure a smooth, transparent, and efficient capital-raising process for banks and holding companies participating in the recapitalisation programme.

This framework outlines the guidelines and procedures banks are required to follow to raise capital through rights issuance, private placements, or other approved methods during the 2024-2026 recapitalisation period.

On March 29th, the CBN directed an increase of capital base for Deposit Money Banks (DMBs) to improve productivity, establishing new minimum capital requirements, with international banks required to raise their capital base to N500 billion, national banks to N200 billion, and regional banks to N50 billion.

The SEC acknowledged the rationale behind the CBN’s directive, highlighting the need to strengthen banks’ asset base and support economic growth in line with the government’s target of achieving a $1 trillion economy by 2030.

Also, it recognised the capital market’s crucial role in facilitating this programme by enabling banks to access the necessary funds and explore various business combinations.