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Global credit rating agency Fitch Ratings has cautioned that Union Bank of Nigeria (UBN) and other smaller financial institutions may face mergers, acquisitions, or license downgrades due to challenges in meeting the Central Bank of Nigeria’s (CBN) revised capital requirements.
In a recent report, Fitch highlighted that while Nigeria’s first-tier and second-tier banks have made significant progress in raising fresh capital, tier-3 banks have lagged behind.
As a result, these smaller banks may need to explore consolidation or downgrade their licenses to comply with regulatory standards.
In March 2024, the CBN increased the minimum paid-in capital requirements for commercial, merchant, and non-interest banks to strengthen the financial sector and ensure banks have adequate buffers against economic shocks.
To meet the new requirements, banks have three options: securing fresh equity, merging with other institutions, or opting for a lower-tier banking license.
Larger banks have leveraged shareholder backing and capital markets to raise funds, but tier-3 banks have struggled to attract sufficient investment.
Fitch noted that several smaller banks have yet to finalize their capital-raising plans or secure shareholder approvals.
Union Bank of Nigeria, for example, remains in breach of the CBN’s 10 percent Capital Adequacy Ratio (CAR) requirement. Similarly,
Wema Bank has received shareholder approval to raise capital to retain its national banking license, with plans to begin fundraising by April 2025. Coronation Merchant Bank has also obtained board approval for capital raising, though its next steps remain uncertain.
Fitch warned that if these banks fail to raise the necessary capital in time, they may be forced to merge with stronger institutions or downgrade their licenses to comply with regulatory mandates.
In contrast, major banks have made substantial headway in meeting the new capital requirements.
Access Bank and Zenith Bank have successfully raised funds to meet the N500 billion threshold for international banking licenses.
Meanwhile, First HoldCo, United Bank for Africa, and Guaranty Trust Holding Company are raising capital in phases, with some awaiting final regulatory approvals for their rights issues.
Fidelity Bank and FCMB Group, both classified as mid-tier lenders, have completed initial rounds of capital raising but will require additional funds to maintain their international banking licenses.
Fitch also noted that Ecobank Nigeria and Jaiz Bank had already met the new capital thresholds, though Ecobank Nigeria remains non-compliant with the 10 percent CAR requirement and is working to restore compliance.
Despite economic uncertainties, investor interest in capital raising has been strong, allowing most top and mid-tier banks to secure funding.
This has reduced the likelihood of widespread consolidation among larger banks.
Fitch expects ongoing recapitalization efforts to reinforce the banking sector’s financial stability, helping institutions absorb losses from the naira’s devaluation and external economic pressures.
A stronger capital base will also shield banks from foreign exchange volatility and regulatory risks while supporting