Market News

Five early-bird banks that approached the Nigerian bourse for capital have raised approximately N1.27 trillion as the race for sector-wide recapitalisation intensifies.

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This implies that investors remain upbeat on Nigeria’s banks’ stocks. Not even the government’s windfall tax from banks’ 2023 foreign exchange (FX) gains could deter equity investors from either increasing stake or acquiring new shares of the lenders.

Since the banking recapitalisation exercise was announced on March 29, 2024, some banks have been to the equities market to raise capital. Five have concluded, and one is still ongoing.

The banks include: GTCo (N400.5billion), Access Holdings (N350.1billion), Zenith Bank (N289.1 billion), Fidelity Bank (N127.1billion), and FCMB Group (N110.9billion).

Also, Sterling Financial Holdings Company is in the market for N153billion after finalising a $50million capital raise through private placement. Among these banks that have raised the targeted N1.277 trillion, some recorded oversubscriptions.

“Adequately capitalised banks can facilitate larger transactions and complex business ventures, bolstering the banking sector’s resilience and overall economic strength,” said Jibola Odedina, managing director/chief executive officer, Coronation Securities Limited.

Coronation Securities views the bank capitalisation initiative as a timely catalyst for economic growth, noting that capitalisation requires banks to hold sufficient funds as a buffer against financial downturns.

“Nigerian banks across all licence categories face a substantial capital shortfall, ranging from 35 percent to 90 percent of the new minimum requirement. This industry-wide gap totals approximately N4.2 trillion (KPMG, 2024).

“Bridging this deficit is essential for the banking sector to maintain its role as an economic growth engine, benefiting all stakeholders. A capital infusion will enable Nigerian banks to compete more effectively with their African counterparts. Recapitalisation will empower Nigerian banks to compete on a global stage. Currently, no Nigerian bank ranks among the top tier in terms of capital,” Odedina further said in a recent commentary.

The Central Bank of Nigeria (CBN) had, in March, launched a recapitalisation programme requiring commercial banks to raise fresh capital in line with the minimum requirement for their respective banking licences, – to simultaneously boost the Nigerian economy and strengthen the Nigerian financial services industry. The recapitalisation is to be completed within 24 months, from April 1, 2024, to March 31, 2026.

Fidelity Bank, which had received shareholders’ approval long before CBN announced the recapitalisation exercise, was the first to enter the market with a N127.1 billion combined rights issue and public offer. The offer ended on August 12, and about two weeks later, the bank announced that it had surpassed its N127.1 billion target, hinting towards an oversubscription.

“With the conclusion of the Combined Offer, I am delighted to announce that we have met and surpassed the capital-raise target we set for ourselves in the first phase of our capital-raise exercise,” Nneka Onyeali-Ikpe, Fidelity Bank’s CEO said in an email to investors.

FCMB Group was in the market to raise N110.9 billion through a public offer. About a week after the end of the public offer, the group’s CEO announced that the bank had raised the offered sum with over 40,000 investors participating in the offer.

GTCO Holdings, which was in the market with the country’s largest ever public offer of N400.5 billion, is also reported to have raised over N1.26 trillion, marking a significant oversubscription. Zenith Bank ended its N290 billion combined offer about a month ago on September 23, and sources close to the bank say that the bank has raised its offered sum. Access Holdings was in the market with a N351 billion rights issue.

The banks’ capital-raising efforts were bolstered by NGX Invest, a digital platform launched by the Nigerian Exchange (NGX), which facilitated a seamless process for selling their offerings. The NGX Invest is designed to significantly enhance the efficiency of public offering subscriptions and rights issue processes, streamlining operational workflows to better support issuers’ capital-raising efforts.

Jude Chiemeka, CEO of NGX, who underscored the platform’s transformative potential said, “NGX Invest addresses the demand for a more efficient and transparent process in managing public offers and rights issues. It will expedite reconciliation and allotment processes, reduce unclaimed dividends, and boost investor confidence.”

The equity market is up this year as most major listed banks have raised their capital. The market has risen this year by 31.99 percent. The NGX Banking Index has risen by 4.24 percent, according to trading data as at October 21.

Capital Bancorp Group, a financial advisory company, had noted in a report in first half of the year that banks’ race to capitalisation might increase share price volatility and push stock prices up.

It noted that recapitalisation enhances banks’ long-term sustainability, “by bolstering their balance sheets. A fortified capital base improves the bank’s resilience against economic downturns, attracts deposits, and sustains lending operations, fostering profitability and elevating shareholder value.”

“The issuance of new shares during the recapitalisation process may reduce the ownership percentage of existing shareholders in banks. Share price volatility, defined by market fluctuations, may increase if investors interpret the recapitalisation as a positive move that enhances the bank’s financial health and prospects, potentially leading to an upward trajectory in stock prices,” Capital Bancorp noted.