Foreign Investments Climb Amid CBN’s Bank Recapitalisation Efforts

Nigerian foreign investments surged following the Central Bank of Nigeria’s (CBN) recent bank recapitalisation program.

The CBN Governor, Olayemi Cardoso, stated this during an event in Abuja on Wednesday.

Cardoso, represented by John Simeon Onoja, Acting Director of Financial Policy and Regulations, said the recapitalisation program is designed to enhance the liquidity of Nigerian banks, thereby increasing their lending capacity to critical sectors.

“The impact of the capitalisation program is evident as it has significantly increased the lending capacity of banks, empowering them to support relevant sectors more effectively,” Onoja said.

The CBN’s efforts have already started to bear fruit. Foreign investments into Nigeria soared to $3.38 billion in the first quarter of 2024, a dramatic rise from the $1.09 billion reported in the previous quarter, according to the National Bureau of Statistics (NBS).

Portfolio investments led the charge, accounting for $2.08 billion, or 61.5% of the total investment.

“The banks are already seeing the influx of foreign direct investments,” Cardoso noted. “These investments are not only bringing in much-needed foreign exchange but also improving the liquidity situation in our forex market.”

The recapitalisation requirements have prompted some banks to explore various capital-raising strategies, including issuing ordinary shares, public offers, rights issues, private placements, mergers, and acquisitions.

The CBN has provided flexibility for banks unable to meet the new capital requirements, allowing them to downgrade to regional status while still serving the Nigerian market effectively.

Cardoso pointed out that the CBN routinely conducts stress tests to ensure that financial institutions can withstand economic shocks. “These stress tests are crucial for making informed management decisions and ensuring the resilience of our financial institutions,” he explained.

The new minimum capital requirements, announced by the CBN in March 2024, set a baseline of N500 billion for commercial banks with international authorization. This has led to an assessment of the capital gaps faced by banks.

For instance, international banks like Access, First Bank, FCMB, GTCO, Fidelity, Zenith, and UBA collectively hold a capital of about N1.3 trillion but need at least N2.2 trillion to meet the new standards.

Nationally licensed banks such as Ecobank, Stanbic IBTC, Citibank, Keystone Bank, and others face a similar challenge, with a collective gap of N1.6 trillion to reach the N2.2 trillion requirement.

Ike Chioke, CEO of Afrinvest Group, presented a report highlighting the capital shortfall and the likely industry changes, including mergers, acquisitions, and license adjustments.

Chioke emphasized that for Nigeria to achieve its target of a $1 trillion economy, comprehensive growth across all sectors is essential. “It’s not just the banks that need to grow; every sector of the economy must expand to reach this ambitious goal,” he said.

The recapitalisation program aligns with Nigeria’s broader economic goals, aiming to foster a robust financial sector capable of supporting sustainable economic growth.

As foreign investments continue to climb, the CBN’s efforts are poised to drive significant advancements in the nation’s financial and economic landscape.