Recapitalization In The Nigerian Banking Sector: Legal Considerations And Strategic Options

Introduction

The CBN in its March 28, 2024 circular announced an upward review of the minimum capital requirements for banks in Nigeria, mandating banks to raise their minimum paid-up capital by March 31, 2026 as follows: ₦500 billion for international commercial banks; ₦200 billion for national commercial banks; ₦50 billion for regional commercial banks; ₦50 billion for national merchant banks; ₦20 billion for national non-interest banks; and ₦10 billion for regional non-interest banks.

As the CBN deadline approaches, this newsletter following our newsletter earlier written on the subject of recapitalization, outlines the options available to banks yet to meet the CBN's recapitalization requirements and key legal considerations.

A. Legal Considerations

The process of recapitalization requires strict compliance with the provisions of the law; the procedures set out by the CBN, and other applicable regulatory authorities.

Below are some legal considerations for banks seeking to recapitalize.

i. Conduct legal due diligence and Anti-Money Laundering screening

Banks seeking to recapitalize are required to conduct due diligence and effective anti-money laundering screening/checks on prospective investors, to mitigate the risk of injecting capital from fraudulent sources into the bank. Measures for due diligence include know your customer, customer due diligence and suspicious transactions monitoring. The CBN is empowered to enforce strict enforcement of checks for all prospective and significant shareholders as well as directors and senior management staff of banks.

ii. Obtain corporate approvals

Banks are required to obtain board and shareholders' approval, ensuring alignment with the Banks and Other Financial Institutions Act (BOFIA) 2020 as amended and good corporate governance practices, for sustainable compliance. The resolutions approving the recapitalization among other documents, will be provided to CBN and SEC in the request for approval for recapitalization.

iii. Obtain regulatory approvals

A bank seeking to recapitalize is required to submit a detailed application to CBN and the Securities and Exchange Commission (SEC) containing the means by which the bank will meet the recapitalization target. Documents to be provided to the CBN and SEC for approval include, written request for approval, board resolution, shareholders resolution, prospectus, etc.

iv. Preparation and execution of transaction documents

Depending on the choice method of recapitalization which the bank will apply, transaction documents will to be prepared and executed, after due negotiation by relevant parties. For example, if the bank seeks to recapitalize through an acquisition, documents such as share sale and purchase agreement, non-disclosure agreement etc. will be prepared and executed by the relevant parties.

v. Filing necessary post transaction documents

Upon completion of the transaction, banks will be required to file necessary post-issuance returns to the CBN and SEC. Also, the bank's record with the Corporate Affairs Commission (CAC) will need to be updated.

B. Strategic Options

In the CBN's circular, the CBN prescribes the following options as available to Nigerian banks seeking recapitalization:

• Public Offers
• Rights Issue
• Private Placements
• Mergers and Acquisitions
• Upgrade or downgrade of license authorization

i. Public Offers

For the purpose of bank recapitalization, a public offer involves issuing new shares or securities to the general public through stock exchanges or regulated markets to raise required capital.

This process enables larger investor participation to meet capital adequacy thresholds and provide large-scale funding.

ii. Rights Issue

This refers to the method of recapitalization where a bank offers existing shareholders the right (but not the obligation) to purchase additional new shares. By the use of rights issue, the bank will be able to raise additional capital while minimizing ownership dilution for existing shareholders.

iii. Private Placements

Private placement refers to a method of recapitalization where the bank raises capital by directly selling its shares to a select group of pre-identified investors like institutions or high-net-worth individuals and bypassing public markets.

This approach enables quick funding, offers confidentiality, lower costs, and regulatory exemptions compared to public offerings, making it suitable for mandatory recapitalization.

iv. Mergers and Acquisitions (M&As)

For bank recapitalization, M&A involves undercapitalized banks merging with or being acquired by stronger banks to consolidate capital base, assets, and operations, thereby meeting the minimum share capital set by the CBN.

Mergers create a unified entity with enhanced scale and stability, while acquisitions allow financially robust banks to absorb others, thereby boosting combined equity without new share issuance. An example of the use of this strategy for recapitalization is the concluded merger between Union Bank of Nigeria and Titan Trust Bank, with Union Bank of Nigeria being the surviving entity.

v. Upgrade or downgrade of license authorization

This refers to adjusting a bank's operational category—such as from national to regional or vice versa—under CBN guidelines to align with the new minimum capital requirements.

An upgrade expands scope and requires higher capital for broader operations, while a downgrade scales back activities to a lower-threshold license, avoiding full recapitalization costs.

CONCLUSION

As the March 2026, deadline for recapitalization looms, Nigerian banks stand at a pivotal crossroad where strategic action today would secure tomorrow's dominance.

Rights issues, mergers, and compliant capital raises provide banks with a launchpad for expansion and economic impact.

Banks yet to recapitalize are therefore required to prioritize legal diligence under CBN/SEC guidelines and mitigate dilution risks pursuant to the provisions of the Companies and Allied Matters Act 2020.

The recapitalization wave is expected to reshape Nigeria's financial landscape, and provide a pathway for enduring growth and stability in Nigeria's banking sector.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.