Director-General of Nigeria’s Securities and Exchange Commission (SEC), Dr. Emomotimi Agama, at the weekend in Abuja said the nation must address critical sectors and leverage the ongoing banking sector recapitalized to unlock its potentials and achieve the much touted trillion-dollar economy.
Speaking on the ongoing recapitalization of banks at a forum, Agama noted the need to diversify Nigeria’s economy from oil exports, besides investing in infrastructure, human capital and innovation to enhance the business environment while reducing regulatory hurdles as well as promote financial inclusion and access to credit for SMEs and individuals.
The ongoing banking sector recapitalization, the DG said, “refers to the process of increasing a bank’s capital to meet regulatory requirements, improve financial stability, and enhance lending capacity. Banking recapitalization 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: Banks can issue new shares to raise capital from investors: Debt financing: Banks can issue bonds or other debt securities to raise capital from investors and Rights issues: Existing shareholders can purchase additional shares at a discounted price.
“Recapitalization 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,” he added.
The SEC boss said that a recapitalized 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, boosting capital inflows and deepening the capital market.
According to Agama, recapitalization could also attract listing of more banks and other companies on the Nigerian Exchange Limited (NGX), increasing market capitalization and fostering a stable financial system, reducing systemic risk and promoting economic stability. The Nigerian Exchange platform, he stressed, is 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 stated that recapitalization can also be challenging, 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.
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 ambitious target of achieving a $1tr economy by 2030.
It also recognized the capital market’s crucial role in facilitating this program by enabling banks to access the necessary funds and explore various business combinations.
“As the regulatory institution mandated to regulate and develop the Nigerian capital market, it has the responsibility to ensure a smooth, transparent, and efficient capital raise process by the banks” the framework added.
The framework establishes clear guidelines for banks to follow, while promoting transparency and protecting the interests of all involved parties.
Recall that on March 29, the CBN directed an increase of capital base for deposit money banks to improve productivity, establishing new minimum capital requirements, with international banks required to raise their capital base to N500bn, national banks to N200 billion, and regional banks to N50bn.
It urged DMBs to expedite action to raise the fresh capital and strengthen the Nigerian financial system against potential risk, adding that the framework is a direct response to the CBN’s recent directive for banks to bolster their capital base and outlines the specific guidelines and procedures that banks must adhere to when raising capital through various methods, including rights offerings, private placements, and other approved options during the 2024-2026 programme period.
