The Chief Financial Officer of Sterling Bank Plc, Abubakar Suleiman, has given a hint that banks may soon embark on recapitalisation that could result in mergers and acquisitions. Suleiman, who spoke with Reuters, said the falling value of the naira coupled with increased regulatory pressure had been putting strains on the banks, hence the imminent resort to recapitalisation.
Suleiman told Reuters that he expected naira to be further devalued by 20 per cent, saying this would erode the capital ratio of a number of banks exposed to foreign currency assets, adding that the situation would trigger mergers with Sterling Bank already thinking of “buying one or two medium-sized banks.”
The Sterling Bank chief was speaking in light of a letter issued by the Central Bank of Nigeria (CBN) on March 13, 2015 to some banks that had failed to meet the minimum Capital Adequacy Ratio (CAR) of 10 per cent and 15 per cent for regional/national and international banks, respectively, under Basel II. The apex bank had given them three months, till 13 June 2015, to submit their recapitalisation plans and till 30 June 2016 to implement the plan.
However, many of the banks have found it difficult to comply with the directive and may fail to meet the recapitalisation plans submitted to the CBN due to the instability in the economy and the stiff regulation imposed on them by the apex bank.
The introduction of the Treasury Single Account (TSA), which forced the pulling out of about N2.2 trillion from commercial banks into the CBN, is said to have affected the liquidity of many of the banks with a number of them already disengaging their staff.
In addition to the TSA, the CBN also instructed banks to stop charging their customers Commission on Transaction (COT). This has also adversely affected banks’ liquidity as all of them hitherto relied on COT to shore up their earnings. Persistent illiquidity was one of the reasons cited by Professor Chukwuma Soludo, former CBN governor, for calling for bank consolidation in 2004.