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RECAPITALIZATION IN THE NIGERIAN BANKING SECTOR: LEGAL CONSIDERATIONS AND STRATEGIC OPTIONS

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BY SEUN TIMI-KOLEOLU AND MARK IMONITIE

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.

 

  1. 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.

 

About us:

Pavestones is a full-service legal practice, registered with the Securities and Exchange Commission as a Capital Market Solicitor. Pavestones deliver quality and innovative legal support across diverse industries, helping clients operate in compliance with applicable laws and regulations to drive sustainable business growth.

REGULATORY UPDATE – REVISED RULES ON MERGERS, ACQUISITIONS AND TAKE-OVERS IN NIGERIA

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By Seun Timi-Koleolu and Eustace Aroh

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Prior to 2019, the Securities and Exchange Commission (“SEC”) was the primary body responsible for mergers, acquisitions and take-overs of public and private companies in Nigeria. With the enactment of the Federal Competition and Consumer Protection Commission (“FCCPC”) Act 2019, the provisions within the Investment and Securities Act 2007 on mergers were repealed and the FCCPC became the primary body responsible for regulating mergers. Notwithstanding, SEC maintained its rights to regulate mergers and acquisitions affecting public companies on the basis that it is the primary regulator of the capital market in Nigeria.

Consequently, SEC released an Amendment to the SEC Rules on Mergers, Take-Overs, and Acquisitions (“Amendment”) on August 30, 2021. In this article, we have highlighted some salient provisions of the Amendment.

 

What Transactions require the approval of SEC?

Although all companies are required to obtain an approval for mergers and acquisitions from the FCCPC, the Amendment mandates public companies to apply to SEC for approval in respect of the following transactions.

  1. Any amalgamation or merger involving a public company.
  2. The conversion of a public company to any other form of company or the reconstruction of the shares of a public company.
  3. Restructuring of a public company which includes “carve-outs”, “spin-offs” and “split-offs” as defined in the Amendment.
  4. Acquisition or disposal of assets that result in a significant change in the business direction or policy of the public company.
  5. Any of the foregoing transactions carried out by a subsidiary of a public company.

The power to prevent monopoly and restraint of competition, however, remains with  FCCPC.

 

Whose obligation is it to apply for the approval?

It is the obligation of the public company involved in the transaction to apply to SEC for approval notwithstanding the involvement of other types of companies in the transaction.

 

What are SEC criteria for granting approval?

In obtaining the approval of SEC, the applicant must prove that all the shareholders of the public company are treated fairly, equitably and are given sufficient information in connection with the transaction.

 

What transactions are exempt from the requirement to obtain SEC approval?

The following are exempt.

  1. Any acquisition by a public company of a business or asset which does not involve the issuance of shares of the public company as consideration for the acquisition. The company will, however, be required to provide pre and post-acquisition financial statements to its shareholder; and disclose any conflicting interest with respect to the transaction.
  2. Any divestment of the asset of a public company that is less than 15% of the total asset of the company or any divestment of assets that do not form a core part of the business. The company may, however, voluntarily notify SEC of any such divestment.

 

What is the process of obtaining the approval of SEC?

In addition to complying with the requirements under the Companies and Allied Matters Act 2020 and the provisions of the FCCPC Merger Review Guidelines, a public company is also required to make an application to SEC. Prior to the merger, the public company is required to make a preliminary application to SEC and obtain an approval in principle before arranging court-ordered meetings for the shareholders of the respective companies. The public company is expected to invite SEC to this meeting. Upon approval of the shareholders of the respective companies, a formal application is to be made to SEC.

 

Conclusion

The Amendment helps to provide a level of clarity on SEC requirements pertaining to mergers, acquisitions and take-overs involving public companies. Please note, however, that not all changes introduced by the Amendment were highlighted by SEC in the document as new introductions. Companies are, therefore, advised to seek professional support when engaging in such transactions.

Legal and Regulatory Considerations for Business Acquisitions in Nigeria

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By Aderonke Alex-Adedipe and Olawale Atanda

The main objective of every business is to make profit. Companies continually explore methods of increasing their bottom line and sometimes, that may mean acquiring companies in the same industry for several operational or economic reasons which ultimately would lead to increased revenue.

Recently, the fintech space in Nigeria was given a significant boost following the acquisition of Paystack by international payments company, Stripe in a record-breaking deal. For companies seeking to make similar acquisitions in Nigeria, there are certain legal and regulatory requirements to be considered when acquiring a business.

  1. General Applicable Legislations

Acquisitions in Nigeria are governed by key legislations. These are the Federal Competition and Consumer Protection Act (FCCPA) 2019 and the Companies and Allied Matters Act 2020 (CAMA).

Prior to the passage of the FCCPA in 2019, the Investment and Securities Act (ISA) 2007 and the Securities and Exchange Commission Rules and Regulations 2013 (SEC Rules) governed mergers and acquisitions in Nigeria. By the provisions of the FCCPA however, the Federal Competition and Consumer Protection Commission (“the Commission”) took over the regulation of mergers and acquisitions from SEC.

Under the FCCPA, all acquisitions are required to be approved by the Commission. However, acquisitions classified as “small mergers” are not required to be notified to the Commission except otherwise requested by the Commission. Small mergers are classified as such, where the combined assets and turnovers of the acquiring and target company fall below NGN1 billion.

It should be noted that acquisitions of shares qualify as “mergers” and fall under the regulation of the Commission whenever they result in an acquisition of controlling stake in the acquired company.

  1. Sector-Specific Legislations

There are other legislations that are specific to individual industries. Companies operating in these sectors are required to follow the rules of acquisitions specified in the legislations or required by regulators. These laws and regulatory requirements operate in addition to the primary legislations stated above.

In the banking sector for example, the Banks and Other Financial Institutions Act and the Central Bank of Nigeria’s Guidelines regulate acquisitions in the banking sector. Also, the Central Bank of Nigeria (“CBN”) generally requires other financial institutions which the CBN regulates to seek its consent prior to a change in the ownership structure of such institutions.

  1. Taxes

Acquisition transactions should not take place without the prior direction from the Federal Inland Revenue Service (FIRS) in connection with taxes/duties which may be applicable to such transaction. It is important that both the acquirer and target companies settle all outstanding tax obligations to the FIRS. Where the acquisition involves the sale of assets, capital gains tax will be payable. In situations where an acquisition results in the creation of more shares, stamp duties tax will be payable on the new shares.

Conclusion

Acquisition transactions are major deals which require several legal considerations. Acquiring companies should ensure that, in addition to the economic factors already considered, legal and regulatory requirements should be met when closing an acquisition deal to prevent regulatory sanctions and legal liability.