(Bloomberg) -- Nigeria’s move to order banks to recapitalize is likely to prod the nation’s smaller banks to combine with rivals before a 2026 deadline, according to S&P Global Ratings.
The size and solvency level of individual banks will determine how they end up in the exercise, with tier-one and mid-sized lenders likely to meet the deadline while small lenders may see mergers and acquisitions, said Samira Mensah, an analyst at the rating company. About half of the nation’s lenders are classified as small.
“Top tier banks in particular have always had a very strong track record of accessing capital market and the Eurobond, so they are well known to investors,” Mensah said in an interview in Lagos.
The Central Bank of Nigeria in March gave lenders two years to shore up capital to bolster their defenses following a nearly 70% devaluation of the naira in the past 12 months, high inflation rate, rising borrowing costs and weak economic growth. Nigeria’s economy, which ranked as Africa’s largest in 2022, is set to slip to fourth place this year because of the plunging currency.
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“We speak to investors regularly and they are interested on which banks could potentially be under regulatory forbearance when it comes to solvency ratio as a result of the naira depreciation, so they are more worried about those banks,” Mensah said.
The central bank ordered lenders with international units to increase capital 10-fold to 500 billion naira ($325 million) and those with local operations by eight-fold to 200 billion naira.
Small lenders operating in only specific regions of the country were directed to beef up capital five-fold to 50 billion naira.
Some of the nation’s 26 commercial lenders including Access Holdings Plc, the biggest bank by assets and Fidelity Bank Plc, a mid-sized lender are selling shares to raise capital.
In April, Mustafa Chike-Obi, chairman of the Bank Directors Association of Nigeria, said it may be very difficult for some lenders to meet the requirement owing to unfavorable operating environment that dampens the industry’s attraction to investors.
The top-tier banks will be able to raise funds locally and offshore because of their scale of operations and profitability, likewise mid-sized Fidelity Bank and FCMB Group, Mensah said.
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