Polaris and Keystone are exploring a potential merger in response to Nigeria's capital regulations promoting industry consolidation.
In 2024, Nigerian commercial banks initiated capital-raising initiatives to meet the Central Bank of Nigeria's (CBN) revised capital requirements. Major tier-1 banks successfully secured over ₦1 trillion in equity financing, while smaller banks are exploring mergers and acquisitions to achieve compliance by the March 31, 2026 deadline.
At least three banks, including Polaris and Keystone, are reportedly looking into possible mergers, as per sources close to the situation. These talks are still in the early phases, and although the specific capital needs for these banks are not fully defined, both will need to secure more funding after the CBN increased capital requirements tenfold in March 2024.
Polaris Bank's capital base stood at ₦50.43 billion in its 2022 financials. To meet the new ₦200 billion requirement for national banks, it needs to raise an additional ₦150 billion. The new rule that excludes retained earnings from qualifying capital adds another layer of difficulty for banks trying to comply. Keystone Bank, while its financials aren't publicly disclosed, is expected to face similar challenges.
Neither Polaris Bank nor Keystone Bank responded immediately to requests for comments.
Historically, mergers have been a go-to strategy for banks looking to recapitalize, and this trend is likely to persist. In August 2024, the CBN greenlit a merger between Unity Bank and Providus Bank, forming a new entity with a balance sheet of up to ₦3 trillion. The last major recapitalization in Nigeria back in 2004 slashed the number of banks from 89 to just 25.
Moody’s, the credit ratings agency, anticipates that the new capital rules will lead to significant consolidation in the sector. KPMG pointed out that while issues like loss of identity, dilution of ownership, and cultural clashes can make mergers less appealing, many banks will have no choice but to consider this route to meet the new capital standards.
A merger presents a strategic opportunity for Polaris and Keystone, particularly given the significant regulatory challenges both institutions have faced. Following the Central Bank of Nigeria's (CBN) January 2024 dismissal of the boards of Union, Keystone, and Polaris banks for regulatory non-compliance and corporate governance failures, a subsequent investigation into bank ownership raised concerns regarding the potential involvement of former CBN governor Godwin Emefiele in acquiring Union Bank and Keystone through proxies utilizing illicit funds.
For the CBN, Nigeria’s economic challenges have underscored the necessity for “stronger and more resilient banks” to help the country achieve its $1 trillion economy goal by 2030, which is a top priority for President Bola Ahmed Tinubu’s administration. Banks with larger capital reserves will be in a better position to provide more credit to individuals and businesses.
Major banks in Nigeria, like Guaranty Trust, Access Bank, and Zenith Bank, have been raising new capital to comply with the regulatory demands. On January 6, GTCO, a Nigerian banking group valued at ₦1.71 trillion, secured ₦209 billion in the first phase of its recapitalization plan. Zenith Bank, another leading lender, raised ₦350.4 billion through a rights issue and public offering.