The Legal Dynamics of Bank Recapitalisation in Nigeria
In a strategic effort to reinforce the stability and resilience of Nigeria’s financial system, the Central Bank of Nigeria (CBN) has initiated a robust bank recapitalization programme. This initiative is firmly rooted in the Banks and Other Financial Institutions Act (BOFIA) 2020 and the CBN’s Prudential Guidelines and associated regulatory frameworks. Its core objectives are to enhance capital adequacy across the banking sector, reduce systemic risks, and ensure that Nigerian banks are sufficiently capitalized to support sustainable economic growth.
An analysis of the legal and regulatory framework governing this initiative reveals several implications for the banking landscape, particularly concerning mergers and acquisitions (M&A), foreign investment compliance, and corporate governance. These dimensions are likely to raise complex legal questions during the implementation phase.
At the heart of the recapitalization policy is BOFIA 2020, which establishes the legal authority for regulating banking operations in Nigeria. Section 9(4) empowers the CBN to set minimum capital requirements, while Section 12 mandates banks to maintain sufficient capital buffers against financial shocks. Section 60 further grants the CBN extensive supervisory powers to enforce compliance.
In support of these statutory provisions, the CBN’s Prudential Guidelines, first issued in 2010 and subsequently amended, establish detailed standards for capital adequacy and risk-weighted asset management. These were reinforced in 2023 by a Recapitalisation Circular, which set new minimum capital thresholds of ₦500 billion for international banks, ₦200 billion for national banks, and ₦50 billion for regional banks. These thresholds are intended to align Nigeria’s banking sector with international benchmarks and fortify its capacity to absorb economic shocks.
Complementing this framework is the Companies and Allied Matters Act (CAMA) 2020, which governs corporate restructuring, share capital adjustments, and merger procedures. Sections 124 to 126 outline how companies may alter their share capital or issue new shares, while Section 711 mandates regulatory approval for major corporate reorganizations. The Investment and Securities Act (ISA) 2007 also plays a significant role by regulating capital market transactions, with the Securities and Exchange Commission (SEC) overseeing public offerings, rights issues, and private placements through which banks may raise new capital.
The recapitalization exercise is expected to catalyze a wave of mergers and acquisitions, as banks seek strategic consolidations to meet the revised capital thresholds. Such transactions must comply with a matrix of legal requirements. Any proposed merger or acquisition involving a Nigerian bank must, inter alia, receive prior approval from the CBN, regulatory clearance from the SEC under the ISA (for publicly listed banks), and a competitive assessment by the Federal Competition and Consumer Protection Commission (FCCPC) in line with the Federal Competition and Consumer Protection Act (FCCPA) 2018. These approvals are essential to ensure the legality of the transaction and to prevent anti-competitive practices in the financial services sector.
M&A transactions must also be underpinned by rigorous due diligence processes. CAMA 2020 imposes fiduciary duties on company directors and obligates them to ensure the fair treatment of minority shareholders. Section 715 of CAMA provides for court-sanctioned schemes in cases involving compulsory acquisitions or complex restructuring arrangements. Additionally, legal attention must be given to employee rights under the Labour Act, particularly with respect to redundancies and severance entitlements. Furthermore, banks must review existing contractual obligations, such as loan agreements and derivatives transactions, for any change-of-control clauses or other provisions that may be triggered by a merger.
Another important dimension of the recapitalization exercise is the anticipated inflow of foreign capital. Compliance with the Foreign Exchange (Monitoring & Miscellaneous Provisions) Act 1995 is critical, as foreign investors must adhere to CBN regulations on capital importation and repatriation. Moreover, the Nigeria Tax Act, 2025 offers legal incentives to attract foreign direct investment (FDI), which could be pivotal in strengthening banks’ capital bases. However, foreign investments must also comply with Nigeria’s anti-money laundering and anti-terrorism financing laws, particularly as banks expand their shareholder base to meet new capital requirements.
In conclusion, the CBN’s recapitalization programme is a legally intricate but economically vital initiative. It draws strength from an interlocking web of statutes and regulatory instruments designed to promote financial system stability. However, its successful implementation depends on the ability of banks and investors to navigate the legal landscape governing M&A, foreign capital inflows, shareholder rights, and regulatory approvals. Legal practitioners, financial regulators, and market participants must collaborate to ensure that the recapitalization process not only strengthens the banking sector but also upholds the rule of law and corporate accountability in Nigeria’s financial ecosystem.
Berkeley Legal is registered with the Securities and Exchange Commission as Capital Market Operators – Solicitors. We provide comprehensive and sophisticated range of specialized legal services to financial institutions and foreign investors that are designed to meet the various needs of highly diversified local and international clients.
For further insights into the Bank Recapitalization drive in Nigeria, please contact us at info@berkeleylp.com.
Disclaimer: The content of this article is provided for general information purposes only and does not constitute legal advice.
