CBN's HoldCo capital rules risk investor fatigue, shareholders warn

Shareholders have urged the Central Bank of Nigeria (CBN) to reconsider proposed capital requirements for Financial Holding Companies (HoldCos), warning that the rules could trigger repeated capital raising, investor fatigue, and weaken confidence in the banking sector. The concerns were raised in a submission on the CBN's Exposure Draft of the Revised Guidelines for Licensing and Regulating Financial Holding Companies in Nigeria, issued on Thursday.

Shareholders flag double capital burden

The shareholders said they support the CBN's efforts to strengthen financial stability, but raised concerns over provisions requiring additional capital at multiple holding company levels. Their concerns centre on Guideline 7.1(i) of the draft regulations, which outlines two structures for HoldCos owning international subsidiaries.

Under one option, international subsidiaries can be held directly by the parent HoldCo. Under the second, ownership would be through an intermediate holding company. The shareholders noted that where the intermediate HoldCo structure is adopted, both the parent HoldCo and the intermediate HoldCo would each be required to maintain regulatory capital equivalent to 120% of the applicable underlying capital base.

“We respectfully submit that applying this capital requirement at two non operating holding company levels may create an excessive capital obligation for Financial Holding Companies,” the shareholders said in the submission.

Recapitalisation fatigue looms

The shareholders warned that the proposal could force HoldCos to return to the capital market repeatedly within a short period. “This could result in repeated capital raising over relatively short periods, leading to shareholder fatigue and reducing investor appetite for future capital injections,” they stated.

Many Financial Holding Companies recently completed significant capital raising exercises following the CBN's banking recapitalisation directive and have already injected the proceeds into their banking subsidiaries. The shareholders are seeking clarification on how capital already invested in international subsidiaries would be treated if the proposed restructuring requirements are implemented.

CBN reviews decade-old HoldCo guidelines

The existing HoldCo guidelines were introduced in August 2014 following Nigeria's transition from universal banking to holding company structures. According to the CBN, more than a decade of implementation has revealed gaps in compliance, governance practices, and operational efficiency, necessitating a comprehensive review.

One of the major changes proposed in the draft concerns the ownership structure of foreign subsidiaries. Under the previous regime, Nigerian banks within a group could directly hold equity stakes in offshore subsidiaries. The revised framework would require foreign subsidiaries to be held directly by the HoldCo or through an intermediate HoldCo. The draft also limits group structures to a maximum of two holding company layers, unless special approval is obtained from the CBN.

Shareholders seek balanced approach

The shareholders urged the CBN to review the proposed capital framework to achieve its prudential objectives without creating unnecessary duplication of capital requirements. “We therefore request that the CBN review the proposed capital framework with a view to achieving its regulatory objectives while avoiding duplication of capital requirements and preserving investor confidence,” they said.

Beyond the capital requirement, the shareholders also sought clarification on the draft guidelines governing interlocking directorships within HoldCos and their subsidiaries. They further expressed concerns over proposed restrictions on dividend payments, warning that tying dividend declarations to the capital adequacy of a HoldCo's most significant subsidiary could discourage investment and create uncertainty over shareholder returns.

The groups said they remain supportive of the CBN's consultative approach to regulatory reforms and expressed confidence that the final guidelines would strike a balance between strengthening financial stability and protecting investor confidence.

The consultation comes amid broader regulatory reforms by the CBN, including proposed ring-fencing rules that would impose stricter controls on transactions between banks and affiliated entities to prevent financial risks from spreading across financial groups. Under the draft guidelines, transactions between banks and closely linked entities must be conducted on arm's-length terms, fully documented, and disclosed to the regulator.

For Nigerian businesses and investors, the outcome of these guidelines will shape how banking groups structure their operations and raise capital, with potential implications for the naira if repeated capital raising pressures weigh on market sentiment.