BusinessDay reported that the Central Bank of Nigeria published proposed holding company rules that could require Nigeria's largest banking groups to raise as much as N370 billion in fresh capital to meet the new requirements, according to an estimate by Zrosk Investment Management.
WHAT THE PROPOSAL ADDRESSED
The exposure draft, released by the CBN on 11 June to revise its 2014 financial holding company guidelines and open for comment until 9 July, would set minimum capital requirements so that HoldCos can act as a source of financial strength to their subsidiaries, require them to own at least 51% of each subsidiary, and allow them to hold foreign subsidiaries directly rather than through Nigerian banking subsidiaries.
The BusinessDay report indicated that the revised holding company rules would require some of the country’s biggest banking groups to adjust their capital structures. The CBN said the review was meant to address observed gaps in the 2014 framework and align it with evolving regulatory and market developments.
MARKET AND CAPITAL IMPLICATIONS
Zrosk Investment Management said all four existing Tier-1 banking HoldCos (GTCO, Access Holdings, First HoldCo and Stanbic IBTC Holdings) could fall below the new capital threshold. The N370 billion figure was Zrosk's estimate of the aggregate capital shortfall under a proposed requirement that a HoldCo's capital exceed the combined paid-in capital of its subsidiaries by at least 20%.
Zrosk said the estimated shortfall, though substantial, was unlikely to pose a systemic threat to the industry, but warned that the cumulative impact could raise compliance costs, reduce capital efficiency and dilute shareholder value if the rules were implemented in their current form.
Zrosk estimated shortfalls of about N120 billion at Access Holdings, N103.7 billion at GTCO, N90 billion at First HoldCo and N11.8 billion at Stanbic IBTC Holdings. It said First HoldCo was the only major HoldCo already in breach of the existing requirement, and that a separate provision requiring non-operating HoldCo structures would effectively force Zenith Bank and United Bank for Africa to restructure.
Sources: BusinessDay Nigeria Banking