So, as 89 deposit money banks failed to recapitalize as required, many of the small-cap banks merged with the relatively bigger banks, coming down to 25 banks overall. Subsequently, the banks were given one and half year to meet the new capital rule or have their licenses revoked if they fail to recapitalize within the specified deadline. Underlining the need for a strong capital base for banks, the reason for the failure of banks in the 1990s and early 2000s, the CBN announced on July 6, 2004, that the minimum capital base of banks in the county be ratcheted-up from two billion naira (15 million dollars in that time) to twenty five billion naira. The banking industry in Nigeria has undergone a sea of changes and transformation in policies and operations, extensive mergers and acquisitions, that were made possible with the coming of Charles Soludo (Prof.), as the Governor of the Central Bank of Nigeria (CBN), in 2004.
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When the banks fail to hold a two billion Birr capital as required within the deadline, the NBE may then deploy the capital rule as a tool to compel the banks to merge and maintain a strong capital, building their balance sheets and increasing their size.Īnd in mulling over the likelihood of mergers in the Ethiopian banking system down the road before 2025, it is useful to examine and draw valuable lessons for a successful private banks consolidation in Ethiopia from the Nigerian banking history that underwent a similar episode in 2004. Under such circumstances, when the regulatory body further requires the banks to hold a new higher capital level by a given timeline, banks with a lower capital base and a glacially growing capital may find it difficult to meet the requirement to ensure their sustainable growth in the future and remain fit for the financial services demanded by the growing economy and the public. The rest ten small-cap banks have different capital levels ranging from 351 million Br to 1,168 million Br and are currently under enormous pressure to reach the acquired capital level. United bank holds a capital fulfilling seventy five percent of the requirement. Three others – Dashen, Abyssinia and Nib – have moved their capital level closer to the requirement. Presently, two older aged mid-sized banks namely, Awash and Wegagen, have capital bases exceeding the two billion Birr requirement. This demands the banks to earn a higher net profit and encourage new and existing shareholders to own more equity in the banks. Raising more capital every year is contingent upon the sale of increased shares and the generous return shareholders receive from their equity investment in banks, at which point they will reinvest to build up the banks’ capital. Few mid -sized banks have met this mark ahead of time, while many others, especially the small-sized ones, standing way off the minimum required capital base, appear to be in a rush to raise additional equity from the open market and meet the ruled capital base before the deadline, end of June 2020. In line with the revisions, all the 16 private banks have been striving to reach the capital level, which at its latest stands at two billion Birr. Over the past twenty-plus years, the central bank, National Bank of Ethiopia (NBE), has thrice set the capital requirement banks are expected to meet.