CBN’s new HoldCo rules may trigger N370bn fresh capital raise

Nigeria’s biggest banking groups may be forced to raise as much as N370 billion in fresh capital under proposed Central Bank of Nigeria (CBN) rules that would reshape the country’s financial holding company structure, a new report disclosed.

The CBN on June 11 released two exposure drafts—the Revised Guidelines for Financial Holding Companies and the Guidelines on Ring-Fencing of Closely Linked Entities, which analysts describe as the most significant overhaul of banking group structures in more than a decade. The documents were signed by Rita I. Sike, director of financial policy and regulation.

While the proposed reforms are designed to strengthen financial stability and shield deposit-taking institutions from group-wide contagion risks, investment research firm Zrosk Investment Management warned that the new requirements could create significant compliance costs, dilute shareholder value, and alter the economics of Nigeria’s integrated financial services model.

At the centre of the proposed changes is a new capital requirement that would compel HoldCos to maintain paid-in capital exceeding the combined paid-in capital of all subsidiaries by at least 20 percent.

The proposal marks a significant departure from the current framework introduced in 2014, which only requires HoldCos to maintain capital equivalent to the aggregate capital of their subsidiaries.

According to Zrosk, the new threshold would immediately place all major Tier-1 banking HoldCos below the required level, creating an estimated aggregate capital shortfall of about N370 billion across the industry.

Access Holdings faces the largest estimated gap of approximately N120 billion, followed by GTCO with N103.7 billion, First HoldCo with N90 billion and Stanbic IBTC Holdings with N11.8 billion.

The firm observed that while GTCO, Access, and Stanbic currently comply with existing rules, they would all require additional capital under the revised regime.

First HoldCo, according to the report, is already under pressure as it remains the only major HoldCo currently in breach of the existing capital requirement, although recent capital injections have helped improve its position.

Beyond the capital implications, Zrosk highlighted another major provision requiring institutions that own multiple closely linked financial entities to establish a non-operating HoldCo structure.

The report noted that the draft uses mandatory language, leaving little room for discretion and effectively compelling Zenith Bank and United Bank for Africa (UBA) to restructure.

While describing the move as operationally demanding, Zrosk argued that it could unlock long-term value, particularly for UBA, by creating opportunities for clearer segment reporting, subsidiary listings,, and strategic divestments.

The report stated that the proposed framework would also require foreign subsidiaries currently held directly under Nigerian banking entities to be transferred to HoldCo structures.

This would affect major lenders including GTCO, Access Holdings, Zenith Bank and UBA, whose extensive African and international operations are presently housed under their Nigerian banking subsidiaries.

Another significant proposal is a requirement for financial holding companies to maintain a minimum 51 percent equity stake in each subsidiary and to be registered as a person with significant control by the appropriate corporate registration authority.

The CBN said the proposed changes are aimed at reinforcing the resilience of Nigeria’s financial system and ensuring stronger oversight of increasingly diversified financial groups.

“In furtherance of its mandate to promote a safe, sound, and resilient financial system in Nigeria, the Central Bank of Nigeria (CBN) issued the Guidelines for the Licensing and Regulation of Financial Holding Companies (FHCs) in Nigeria in 2014,” said Sike.

“Following several years of implementation, the CBN has identified areas within the extant Guidelines that require enhancement to strengthen the operational effectiveness and regulatory oversight of Financial Holding Companies,” she added.

Sike said the guidelines had been reviewed “to address observed gaps and align with evolving regulatory and market developments.”

Stakeholders and members of the public have been invited to review the exposure draft and submit comments to the apex bank before the July 9 deadline.

According to Zrosk, implementing such restructuring would require regulatory approvals across multiple jurisdictions and could involve tax, foreign exchange and legal complexities.

The firm further expressed concern over provisions introducing mandatory customer re-onboarding between related entities.

Under the proposed ring-fencing regime, customers referred from one entity to another within the same group would be required to undergo fresh Know-Your-Customer (KYC) procedures and provide separate consent before accessing services.

Zrosk argued that the requirement strikes at the core commercial rationale behind integrated financial groups, which rely on leveraging existing customer relationships across banking, payments, pensions, insurance, and asset management businesses.

The report also pointed to potential contradictions in the proposed treatment of technology infrastructure, explaining that while one section of the draft permits ICT services to be shared among related entities subject to regulatory approval, another provision prohibits entities from relying on another group’s technology infrastructure for customer transaction processing.

The firm stressed that compliance with such requirements could necessitate costly technology overhauls and duplication of systems across financial groups. (BusinessDay)