BANK VALUATION IN NIGERIA: EXPLORING THE ROLE OF CAPITAL ADEQUACY POST-CONSOLIDATION

Abstract

Operating as a bank, whether in Nigeria or globally, hinges on compliance with stringent regulatory prerequisites, chief among them being the minimum capital requirement. In Nigeria, the Central Bank of Nigeria (CBN) establishes and enforces these capital prerequisites, which serve as a fundamental yardstick for banking institutions. Even after fulfilling all other criteria, an entity cannot function as a bank without satisfying the minimum capital mandate. This stipulation underscores the regulator's paramount concern for ensuring that banks possess the necessary financial resources to cater to their current and prospective clientele.

Capital's significance in banking reverberates throughout the industry, both directly and indirectly influencing its various facets. When assessing the soundness and safety of a bank, capital emerges as a pivotal factor. An adequate capital base functions as a safety net, guarding against an array of risks inherent to a bank's operations. It absorbs potential losses, thereby upholding depositor trust. Moreover, capital availability determines the upper limit of a bank's assets.

As elucidated by Greuning (2009), capital serves two fundamental purposes: fostering stability and absorbing losses, thereby safeguarding depositors and creditors in the event of liquidation. This necessitates that a bank's capital exhibit three crucial attributes: permanence, absence of obligatory fixed charges against earnings, and adherence to legal subordination to depositor and creditor rights.