Nigeria's commercial banks are scrambling to meet the Central Bank of Nigeria's (CBN) new capitalisation requirements, with smaller banks exploring mergers and acquisitions as a last resort. The CBN raised the capital requirements tenfold in March 2024, forcing banks to raise significant funds to comply. Tier-1 banks have already raised over ₦1 trillion on the stock market, but smaller banks are struggling to meet the March 31, 2026 deadline.

At least three commercial banks, including Polaris and Keystone, are currently exploring potential mergers, according to multiple sources familiar with the matter. These discussions are still in the early stages, and while the exact capital requirements for these banks remain unclear, both banks need to raise additional funding to meet the new regulations. Polaris Bank, for instance, had a capital base of ₦50.43 billion according to its 2022 financial statements, and will need to raise an additional ₦150 billion to meet the new ₦200 billion capital requirement for national banks.

The exclusion of retained earnings from qualifying capital adds an additional hurdle for banks in meeting the new regulations. Keystone Bank's financial statements are not publicly available, but it is expected to face a similar challenge. Both banks have faced significant regulatory challenges in the past, including the sacking of their board of directors by the CBN in January 2024, citing infractions ranging from "regulatory non-compliance to corporate governance failure."

Mergers have historically been a common solution to bank recapitalisation efforts, and this trend is expected to continue. In August 2024, the CBN approved a merger between Unity Bank and Providus Bank, creating a new entity with a balance sheet of up to ₦3 trillion. The last major recapitalization in Nigeria, in 2004, reduced the number of banks from 89 to 25. Credit ratings agency Moody's expects the new capital requirement rules to "drive significant consolidation within the sector."

KPMG noted that while concerns such as loss of identity, ownership dilution, and cultural mismatches make mergers less attractive, several banks will inevitably have to pursue this option to meet the new capital requirements. A merger could offer a strategic lifeline for Polaris and Keystone, both of which have faced significant regulatory challenges. The CBN's goal is to create "stronger and more resilient banks" that can help the country reach its goal of a $1 trillion economy by 2030, a key priority for President Bola Ahmed Tinubu's administration.

Banks with larger capital bases will be better equipped to extend more credit to individuals and businesses, supporting Nigeria's economic growth. Nigeria's biggest banks, including Guaranty Trust, Access Bank, and Zenith Bank, have already raised fresh capital to meet the regulatory requirements. On January 6, GTCO, a Nigerian banking group with a market capitalisation of ₦1.71 trillion, raised ₦209 billion in the first phase of its recapitalisation plan. Zenith Bank, another tier-1 lender, raised ₦350.4 billion through a rights issue and public offer.

As the deadline for compliance approaches, it remains to be seen which banks will successfully raise the required capital, and which will be forced to explore mergers and acquisitions to survive. One thing is certain, however: the Nigerian banking sector is on the cusp of significant change, and the outcome will have far-reaching implications for the country's economy.