Pressure Mounts on Nigerian Tier-2 Banks as Mergers Loom

Pressures are mounting on mid-tier banks in Nigeria to meet the Central Bank of Nigeria’s (CBN) mandatory recapitalisation deadline of March 2026.

This may force mergers and alliances among the tier-2 banks, as SB Morgen Intelligence, an Africa-focused research firm, documented in its latest report.

It listed the leading tier-2 banks to include First City Monument Bank (FCMB), Fidelity Bank, Stanbic IBTC Bank, Sterling Bank, and Wema Bank.

The report, ‘Capital, Competition, and Consolidation: How Nigeria’s Tier-2 banks are responding to the CBN’s 2026 recapitalisation order’, was released on Tuesday, September 2.

It indicates that these banks face scaling up their operations or risk being swallowed up in mergers.

“Over the past five years, the share price trajectories of Nigeria’s leading Tier-2 banks—FCMB, Fidelity Bank, Stanbic IBTC, Sterling Bank, and Wema Bank—have reflected both the opportunities and challenges within the country’s evolving financial landscape.

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“The period was marked by significant regulatory interventions, macroeconomic volatility, and a renewed push for recapitalisation, all of which shaped investor sentiment and trading activity on the Nigerian Exchange (NGX),” SB Morgen stated.

It noted that while tier-1 banks often dominate headlines with record profits and market leadership, tier-2 banks demonstrated remarkable resilience and, in several cases, outperformed broader market expectations.

Pinnacle Daily reports that CBN gave the deposit money banks a 24-month window that will end in March 2026 to raise their minimum capital requirements to N500 billion for banks with international licences, N200 billion for national banks, and N50 billion for regional banks.

The policy is to strengthen the financial system ahead of Nigeria’s dream of achieving a $1 trillion economy by 2030.

How tier-2 banks stack up

Continuing, SB Morgen said tier-2 banks have shown resilience in the equities market despite the imbalance it has with tier-1 banks.

It said Fidelity Bank emerged as a standout performer, with its share price surging from N1.65 in 2020 to over N21.20 by mid-2025.

“This extraordinary growth—over 1,100% in five years—was underpinned by robust earnings, aggressive digital expansion, and successful capital raising efforts,” SB Morgen stated.

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The Africa-focused firm noted that Wema Bank has had a similar trajectory, climbing from N1.50 in share price in 2020 to nearly N15.00.

While not matching the meteoric rises of Fidelity and Wema, nonetheless, FCMB and Sterling Bank posted steady and credible gains.

“FCMB’s share price grew from around N3.33 at the end of 2020 to approximately N9.25 at the end of HY [half-year] 2025; Sterling Bank’s share price more than tripled over the period, rising from N1.70 to N6.16, buoyed by its focus on retail and SME banking and a disciplined approach to asset quality,” it maintained.

Responses to recapitalisation

SB Morgen noted that FCMB Group seeks to raise N400 billion in phases, including divestments in subsidiaries and offshore placements.

The first phase, completed early this year and involving a public offer, has seen the bank raise ₦144.6 billion.

“The group also initiated a convertible note issuance, expected to bring in an additional N20–N40 billion by Q3 2025,” it stated.

A second phase will see a divestment of minority stakes (25–30%) in two subsidiaries—Credit Direct Limited and FCMB Pensions Limited—through an Initial Public Offering (IPO) and private placements, targeting proceeds of about N80–N90 billion.

“A final phase will involve private placements with offshore development finance institutions, likely in the form of preference shares or another public offer, aiming to raise the remaining N170 billion,” SB Morgen added.

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It noted that Fidelity Bank has already raised over N270 billion from an oversubscribed public offer and rights issue and is positioning to meet the N500 billion.

“With shareholder approval, Fidelity is set to increase its issued share capital from N26.7 billion to N36.7 billion, creating an additional 20 billion ordinary shares.

“The bank is now preparing for the final phase of its capital-raising programme, intending to meet or exceed the N500 billion minimum capital requirement for international banks,” it said.

Sterling Financial Holdings is pursuing a multi-stage plan of private placements, rights issues, and a forthcoming $400 million public offering, SB Morgen said.

It added that Wema Bank is combining a ₦150 billion rights issue with a ₦50 billion private placement after completing a ₦40 billion issue in 2023.

Mergers, alliances loom

The research firm expects the consolidation exercise to accelerate as 2026 approaches, with mergers and alliances likely among the tier-2 banks.

“The financial performance of these mid-tier banks in 2025 underscores their capacity to compete and thrive, even as Tier-1 institutions consolidate their dominance.

“FCMB’s robust earnings growth, Fidelity’s exceptional capital market performance, and Wema’s digital-led transformation are emblematic of a sector that is both dynamic and responsive to market realities,” it cited.

It observed that while challenges persist—ranging from rising funding costs to the need for greater non-interest income—these banks have largely maintained asset quality, operational efficiency, and profitability in a demanding macroeconomic environment.

It is submitted that, amid the banks’ resilience, the tier-2 banks are at a critical juncture, and their ability to navigate regulatory headwinds, leverage technology, and execute bold capital strategies will determine their place in the next chapter of the country’s financial evolution.

According to the CBN in its latest disclosure, only eight banks have fully met the recapitalisation requirements, Pinnacle can report.