The Central Bank of Nigeria (CBN) in a bold move to rejig the nation’s economy has revised the minimum capital requirements (MCR) for commercial, merchant, and non-interest banks operating in the country. This decision comes amidst a period of economic transformation and follows a series of policy reforms implemented by the CBN.
The revised MCR detailed in a new circular, FPR/DIR/PUB/CIR/002/009, on March 28th, 2024, titled “Review of Minimum Capital Requirements for Commercial, Merchant and Non-Interest Banks in Nigeria,” outlines a tiered structure for minimum capital requirements, categorized by the type of banking license held.
New MCR
Here’s a breakdown of the new requirements:
International Commercial Banks (ICBs): Increased from ₦250 billion to ₦1 trillion (around $2.8 billion)
Commercial Banks: The minimum capital requirement for commercial banks operating in Nigeria has been raised to ₦50 billion (approximately $114 million), reflecting a doubling of the previous threshold.
Merchant Banks: Merchant banks, which specialize in investment banking and financial advisory services, will now need to hold a minimum capital of ₦35 billion (approximately $80 million), a substantial increase from the prior N10 billion requirement.
Non-Interest Banks: Non-interest banks, which operate in accordance with Islamic banking principles, will also see their minimum capital requirement raised to ₦35 billion (approximately $80 million) from the previous ₦10 billion.
These significant hikes represent a minimum of a 100% increase for NCBs, Regional Banks, and Merchant Banks. Notably, Non-Interest Banks, which cater to Islamic banking principles, see a staggering 20-fold increase.
Implementation and Monitoring
The CBN has provided a grace period for banks to comply with the new capital requirements. The exact timeframe for implementation is set to begin from April 1st and terminate on March 31st 2026, a 24-month window. However, banks are expected to submit plans outlining their strategy for meeting the revised benchmarks.
Read Also: Nigeria, Others Lead Mobile Money Adoption Rate Across Sub-Saharan Africa
The CBN, however, has emphasized its commitment to providing a smooth transition period for banks to comply with the new requirements. Regulatory authorities have assured stakeholders that they will work closely with banks to develop feasible recapitalization plans.
Impact on the Banking Sector
The CBN’s decision is expected to have a significant impact on the Nigerian banking landscape. Analysts anticipate a period of consolidation within the industry, as smaller banks may struggle to meet the new capital requirements. Mergers and acquisitions are likely to increase, with smaller banks potentially seeking partnerships or being absorbed by larger institutions.
This consolidation is projected to ultimately lead to a more robust and resilient banking sector. Banks with stronger capital buffers will be better positioned to weather economic downturns and absorb potential losses. Additionally, increased capitalization will allow banks to invest in new technologies, expand their branch networks, and enhance their product offerings, ultimately benefiting Nigerian consumers and businesses.
Additionally Directive
It is vital to state that the CBN noted that banks must still adhere to their required capital adequacy ratio (CAR) while increasing their MCR.
“Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio (CAR) requirement applicable to their license authorization.
“In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularize their position.”
The Road Ahead: Balancing Stability and Growth
The CBN’s decision to raise minimum capital requirements is a bold move with significant implications for the Nigerian banking sector. While the aim of promoting stability and global competitiveness is commendable, the potential challenges regarding market consolidation, credit access, and borrowing costs cannot be ignored.
The success of this policy will hinge on how effectively the CBN manages the transition period. Measures to support bank mergers and acquisitions, alongside facilitating alternative capital raising strategies, could be crucial. Open communication with stakeholders, including banks, fintech companies, and the business community, will be vital in navigating the potential hurdles.
Ultimately, the true impact of the revised MCRs will depend on how the banking sector adapts and how the CBN manages the implementation process. Striking a balance between promoting stability and fostering continued economic growth will be key to ensuring a successful outcome.
