Deloitte on recapitalisation: Nigerian banks can avoid pitfalls & emerge stronger

Nigerian banks are currently facing a crucial deadline of April 30 to submit plans for recapitalisation, aiming to boost their capital adequacy amidst challenges like high inflation, interest rates, currency volatility, and forex illiquidity. Deloitte, a prominent professional services firm, emphasizes the importance of raising the capital base to strengthen banks' resilience in the face of economic uncertainties. Abimbola Ogundare, a Partner and Africa Corporate Finance Leader at Deloitte, provided insights into the implications and options available to banks during a recent interview on CNBC Africa. The Central Bank of Nigeria (CBN) introduced a recapitalisation circular, specifying the capital infusion needed for different categories of banks. International banks are required to raise 500 billion, national banks 200 billion, and regional banks 50 billion. Merchant and non-interest banks also have revised capital base requirements. Banks have been presented with three main options to meet these requirements: raising fresh capital through public or private means, engaging in mergers and acquisitions, or upgrading/downgrading their licenses. Several major banks, including Access Bank, GT Bank, UBA, and Zenith Bank, have already unveiled plans to raise significant amounts of additional capital, signaling proactive steps towards compliance with the recapitalisation directive. The announcement of such initiatives sets the stage for an intense period of strategic decision-making and execution as banks strive to meet the imminent deadline. Tax considerations play a crucial role in each recapitalisation option's feasibility and attractiveness. Ogundare highlighted the potential tax implications associated with raising fresh capital, pursuing M&A activities, or adjusting licensing status. Stamp duties, capital gains tax, and other tax liabilities need to be carefully assessed by banks to ensure compliance and optimal financial outcomes as they navigate the recapitalisation process. Looking ahead, the momentum of regulatory reforms and policy interventions by the CBN is expected to influence the banking landscape in the coming months. The rebound of the Naira, FX revaluation gains, and macroeconomic indicators will shape banks' performance in the near term. As the banking sector aims to enhance its capacity to support economic growth and lending activities to the real sector, a delicate balance between inflation containment and growth stimulation is being sought. Ogundare expressed optimism regarding the trajectory of economic stabilisation and growth moderation in Nigeria. With a bullish outlook on the policy environment and investment climate, he anticipates positive developments in the near future. The alignment of monetary policy decisions, influx of foreign investments, and the robust returns profile of Nigerian banks are poised to sustain economic momentum and attract capital inflows. In conclusion, Nigerian banks are navigating the path to recapitalisation with strategic agility and financial acumen. The imminent deadline serves as a catalyst for transformative actions that will reshape the banking sector's landscape and fortify its resilience in the face of economic headwinds. Deloitte's perspective, as shared by Abimbola Ogundare, sheds light on the intricate considerations and opportunities that lie ahead for banks seeking to emerge stronger from the recapitalisation process.