As banks commercial, non-interest and merchant, in the country continue to brainstorm on how to meet up with the new capital base as required by the Central Bank of Nigeria (CBN), analysts at PWC Nigeria have stressed the need for financial institutions to think outside the box and consider complexities that could impact their decisions.
In a report titled ‘Recapitalisation response pathways: Thinking outside the box’ the PWC analysts highlighted the implications of recapitalisation on the banking industry and the economy, strategic pathways banks can leverage, and key points that will inform and enable better response to the CBN mandate.
The analysts noted that five key complexities, investor, regulatory, customer, competition/market position and strategic focus need to be considered when deciding on the appropriate response pathway to recapitalisation.
On investors, the analysts said banks will have to consider their equity/book value as well Foreign Direct Investments posture to capital injection as against value creation as well as its impact on single obligor limit.
The report also noted that for those with the holding company structure and international licence, these are issues to be put into consideration alongside navigating regulatory complexity in foreign jurisdictions, tax and regulatory compliance as well as capital markets listing requirements.
It also noted that as the recapitalization process kicks off in earnest, there will be flight to safety syndrome among customers who may move their funds if confidence drops. The analysts whilst noting that customer deposit levels are already dropping said the behavioural change of investing and transacting rather than save amongst customers may occur.
In raising funds, the report noted that options before the banks include making rights issues, injecting fresh capital via private placement or raising debt capital through HoldCo. It furthered that banks can also reduce their international portfolio by setting up an offshore holding company whilst maintaining a local play across their various banking options.
Asides these banks can either be acquired by international banks venturing into Nigerian market, acquire other local players, merge with peers, or exit and/or divest portfolio components or they can downgrade/change their existing licences and also expand footprint through non-banking licence authorisation.