The banking sector is abuzz with dissent following the Central Bank’s recent announcement of revised capital requirements, which exclude retained earnings from the share capital calculation.
In a move aimed at fortifying the financial sector, the Central Bank unveiled new capital thresholds, mandating minimum share capital of N500 billion for international banks, N200 billion for national banks, and N50 billion for regional banks.
However, the exclusion of retained earnings from the share capital calculation has sparked controversy among bankers. Retained earnings, representing profits reinvested in the bank rather than distributed as dividends, are traditionally considered a crucial component of a company’s equity.
Many bankers, speaking anonymously to Nairametrics, argue that the omission of retained earnings fails to recognize their actual value, deviating from conventional accounting practices.
While the Central Bank encourages banks to bolster their capital base by retaining earnings, bankers contend that these earnings should also count towards meeting minimum capital requirements.
Estimates by Nairametrics reveal that the top ten banks in Nigeria collectively hold approximately N4.2 trillion in retained earnings. With the exception of Sterling Bank, recognition of retained earnings would obviate the need for additional capital raising among these banks.
This discrepancy underscores widespread dissatisfaction with the CBN’s directive, as it prioritizes direct capital injections over utilizing existing retained earnings to fulfill recapitalization requirements.
Although the Central Bank has allowed for mergers and acquisitions to address potential capital shortfalls, its stance suggests anticipation of challenges in meeting the new requirements.
The CBN justifies the capital raise as essential for fostering the emergence of stronger, more resilient banks, aligning with the government’s economic agenda of achieving a US$1 trillion economy by 2030.
Highlighting the pivotal role of well-capitalized banks in facilitating economic growth through increased credit availability, the CBN emphasizes the imperative of a robust financial sector in driving national economic development.
