- NGX Banking Index declines by 7.4% in H1 2024
- Investors cautious trading in banking stocks
- Lose N1trn as equity market sustains downtrend in July
- Foreign portfolio investment drops by 30.07%
As Nigerian banks continue in their quest to raise fresh funds from the capital market to be able to meet the new capital base requirement of the Central Bank of Nigeria, there are concerns that investors’ apathy due to the prevailing economic conditions might stop the banks from achieving their goals. BAMIDELE FAMOOFO reports.
About seven Nigerian banks are seeking to raise about N1.6 trillion from the Nigerian Exchange Limited in their quest to remain in business after the March 2026 deadline set by the CBN for all banks to boost their capital base to the level it specified for them.
The apex bank in a circular signed by the Director, Financial Policy and Regulatory Department, Haruna Mustafa on March 28, 2024, said the banking sector recapitalisation programme is a regulatory initiative of the Central Bank of Nigeria that requires banks to increase their minimum paid-in common equity capital to a specified amount according to their license category and authorisation within a specified period of time.
“The Programme became necessary to further strengthen Nigerian banks against external and domestic shocks as well as enhance the stability of the financial system. By increasing the minimum capital requirements, the CBN aims to ensure banks have a robust capital base to absorb unexpected losses and capacity to contribute to the growth and development of the Nigerian economy.
“The broad objective of the Programme is to engender the emergence of stronger, healthier and more resilient banks to support the achievement of a $1 trillion economy by the year 2030. Bigger banks with larger capital bases and capacity can underwrite larger levels of credit which is critical to lubricate and catalyze the growth of the economy,” the CBN noted.
The programme, according to the apex bank, shall apply to commercial, merchant, and noninterest banks. The goal is to ensure that each institution maintains adequate capital that is commensurate with the risk profile, scale and scope of its operations.
Stock market performance
The equities market witnessed a declining performance beginning from the third quarter as investors lost about N1 trillion of their money in July.
“Investors have continued to count their losses in the market as the market cap further lost about N1.62 trillion as of August 22, 2024 as the market cap dropped to N54.98 trillion from N56.6 trillion as of June end”
Market capitalisation which measures the financial depth of the market dropped from N56.6 trillion at the close of June to N55.61 trillion as of the last trading day in July. Investors have continued to count their losses in the market as the market cap further lost about N1.62 trillion as of August 22, 2024 as the market cap dropped to N54.98 trillion from N56.6 trillion as of June end.
Preceding the downturn that kicked off in the second half of the year to date, the NGX performed better than several of its peers in H1 2024, recovering from its second position in Q4 2023.
PricewaterhouseCoopers in a report published in July noted that, “The Nigerian equities market (NGX) ranked 1st in the African stock market with a 35.17% increase in H1 2024 relative to Q4 2023. The NGX capitalisation increased by 38.33% in H1 2024 (to N56.602 trillion) compared to Q4 2023 (N40.918 trillion), driven by new listings, significant acquisitions, and an increase in share prices.”
As of the third week in August, the Nigerian equities market extended its bearish trajectory, with the All-Share Index slipping by 12 basis points to close at 95,718.05 points.
Foreign portfolio investment drops
Reflecting the economic situation, the inflow of portfolio investment into the Nigerian bourse in July witnessed a decline year-on-year, when compared to the performance in 2023.
The performance in July 2024 when compared to the performance in July 2023 (N702.98 billion) revealed that total transactions decreased by 30.07 percent. In July 2024, the total value of transactions executed by Domestic Investors outperformed transactions executed by Foreign Investors by circa 76 percent.
Total foreign transactions decreased by 30.02 percent from N82.19 billion (about $55.88 million) to N57.52 billion (about $35.69 million) between June 2024 and July 2024.
Over 17 years, domestic transactions decreased by 10.94 percent from N3.556 trillion in 2007 to N3.167 trillion in 2023; whilst foreign transactions also decreased by 33.28 percent from N616 billion to N411 billion over the same period.
Apathy hits banking stocks
Following the banking sector recapitalisation exercise announced by the CBN in March this year, the NGX Banking Index declined by 7.4 percent, emerging as the worst-performing indicator on the local bourse in H1 2024.
This is coming at a time when investors’ average return on the stock market of the Nigerian Exchange Limited appreciated by 33.81 percent Year-till-Date growth (YtD).
Analysts speak
According to analysts, the poor performance of the banking sector, which usually leads to other indicators, is a result of investors cautious trading in the banking stocks.
Investors who invested in the banking stocks have maintained caution trading as indicated in the NGX Banking Index (NBI) -19.37 percent Quarter-till-Date (QtD) performance.
Analysis of NGX trading data for the first half of 2024 revealed that the NGX AseM Index, NGX Industrial Goods Index, and NGX Consumer Goods Index at 135.25 percent, 73.14 percent, and 41.05 percent YtD growth, respectively led other indices on the exchange.
Commenting, the Chief Operating Officer of InvestData Consulting Limited, Ambrose Omordion, attributed the dwindling banking stocks to panic profit-taking by investors who don’t understand the impact of CBN’s banking sector recapitalisation.
He said, “Banking sector recapitalisation in Nigeria provides a lot of opportunities because these banks are healthy and have a lot of resources. If not, the CBN removed retained earnings; no banks would need the public to raise fresh capital.
“All these banks have robust retained earnings. CBN is looking for another means to mop up liquidity in the system and of course, they wanted the banks to be aggressive in mopping up that money in the system using the right issues, among other means. Banks like Zenith Bank, UBA, GTCO, FBN Holdings, and Access Holdings have strong retained earnings which the CBN does not want them to utilize.”
He, however, urged investors to buy these banks’ stocks as they are currently trading at a lower price.
He added, “These banks’ stocks are dropping but it is an opportunity for investors to take a position. There is no need to panic since the capital market is meant for the long term.”
On the sector’s recapitalisation, an investment banker and stockbroker, Tajudeen Olayinka, stated that banks’ accessing the capital market to raise capital is a welcome development, stressing that the stock market is ready to support banks in their quest to meet CBN requirements.
“The truth is that most banks may not be able to raise as much as they require from the stock market at this time because of high interest rates, among other factors. Ordinarily, banks could have raised as much as they required at a lower cost of equity and as it is now, they may have to consider a higher cost of equity.
“For that reason, some will have to go by the way of right issues and public offers like what Fidelity Bank is doing right now. The exercise will attract foreign investors and local investors are ever ready but may not show much interest due to weaker purchasing power,” Olayinka explained.
The KPMG perspective
Analysts at KPMG anticipate that the move by the CBN will enhance the stability and capacity of the banking industry as well as attract greater investments to the sector.
Segun Sowande, Partner & Head, Strategy and Markets, KPMG Nigeria noted that available data suggests a significant capital shortfall of N4.2 trillion across all license categories, with available options for banks including capital raise (as much as between 35% – 90% of the new minimum capital); mergers and/or acquisitions; and the downgrade of license authorisations.
“We recommend a proactive monitoring of market dynamics to identify and address any systemic risks or disruptions that may arise during the recapitalisation phase to preserve the stability of the financial system,” he said.
Analysing the recapitalization programme, he said, “Increase in capital requirement by the CBN is aimed at strengthening the resilience of the banking industry to withstand challenges arising from global and domestic headwinds. The higher capital requirement will enhance financial system stability as banks become better positioned to absorb financial shocks or unexpected losses.
“In addition, the upward adjustment will help boost investor confidence, notably reducing the number of deposit money banks in the country from 89 to 25. Consequently, banks were better positioned for financial intermediation to support economic growth and development. Bank credits to the private sector as a ratio of GDP rose to as high as 19.6% in 2009 when banks were allowed to operate as regional, national and international banks while market capitalisation increased to about $85bn in the immediate periods following the last bank recapitalisation in 2004.
“With the current reform agenda, the stringent definition of minimum capital which has left significant reserves unavailable for capitalisation, is driving a widespread impact on the banking industry with changes to the competitive landscape expected as fallout. The capital shortfall for banks ranges between 35% and 90% of the new minimum capital requirement, with an estimated total capital shortfall in the banking system as investors tend to perceive well-capitalised banking systems as being ‘too big to fall.”
Data from KPMG showed that the last banking sector reform introduced by the CBN in 2004 led to a significant 1,150 percent increase in the minimum capital requirement for banks, from N2 billion to N25 billion.
The reform was marked by extensive M&As, leading to a loss of about N4.2 trillion across the entire industry.
“Several options are available to banks in their effort to raise additional capital, a route we anticipate to be the first line of action for most banks in achieving the new capital requirement, and these include public offerings, rights issues, and private placements.
“However, consideration for potentially value-accreting mergers and acquisitions as an alternative option may prove invaluable for players who adopt a broad-based approach to the reform. In conclusion, we welcome the recapitalisation of banks with optimism as it is necessary to enhance the resilience of the banking system and support the growth agenda of the economy through greater financial intermediation. However, we recommend a proactive monitoring of market dynamics to identify and address any systemic risks or disruptions that may arise during the recapitalisation phase to preserve the stability of the financial system,” Sowande said.
How they stand
Wema Bank secures N40bn, eyes additional N150bn
Wema Bank has successfully concluded the first tranche of its recapitalisation exercise having secured all relevant regulatory approvals for the allotment of its N40billion Rights Issue initiated in December 2023.
Consequently, Wema Bank flagged off its exercise to meet the target with the N40bn rights issue which has now been approved by the CBN and the Securities and Exchange Commission.
In a statement, Moruf Oseni, Wema Bank’s Managing Director and CEO, reiterated the Bank’s resolve in retaining its Commercial Banking license with National Authorisation, adding that the N40bn Rights Issue is a step in that direction.
He stated, “We are delighted to announce the conclusion of the 1st tranche of our Capital Raise Programme, after obtaining the relevant approvals of all regulatory authorities. Our move to commence our Capital Raise Programme very early demonstrates our push for excellence and with a strong emphasis on our digital play, we are set to amass more successes in the coming months.
“We were impressed by the vote of confidence given by our shareholders during the 1st Rights Issue exercise as our shares were fully subscribed. In addition, we obtained the approval of shareholders at our 2023 Annual General Meeting (AGM) to raise an additional N150 billion to meet the capitalisation threshold set by the CBN. The process is expected to be completed within 12-18 months. We are committed to providing optimum returns for every stakeholder and the successful conclusion of this N40bn Rights Issue is a bold step in the right direction.”
In addition to the upward trend in the Bank’s financial performance and the success recorded so far in its recapitalisation exercise, Wema Bank’s corporate rating was recently upgraded to BBB+ by Pan African credit rating agency, Agusto and Co, and retained at BBB by international rating agency, Fitch. Over the medium to long term, Wema Bank is positioned to not only dominate the digital Banking space but also the Nigerian financial services industry at large as it translates its industry leadership to significant market share.
Fidelity Bank seeks N127bn
Fidelity Bank Plc has closed the application for its N127.2 billion combined rights and public offer, in the first capital raising under the banking recapitalisation.
Fidelity Bank is offered a rights issue of 3.2 billion ordinary shares of 50 kobo each at N9.25 per share. The bank is also simultaneously offering 10 billion ordinary shares of 50 kobo each to the general investing public at N9.75 per share.
Managing Director, Fidelity Bank Plc, Dr Nneka Onyeali-Ikpe, said the net proceeds of the combined offer would be applied towards investment in information technology infrastructure, business and regional expansion, and investment in product distribution channels.
GTCO eyes N400.5bn
Guaranty Trust Holding Company Plc has opened the bid to raise N400.5 billion through a Public Offer for investors in the Nigerian stock market.
To achieve the feat, the financial powerhouse which ranks among the top five leading financial groups in Nigeria, is offering 9,000,000,000 ordinary shares of 50 kobo each at N44.50 per offer share.
GTCO has a total issued and fully paid shares of N14, 715,589,612 divided into 29,431,179,224 Ordinary Shares of 50 kobo each.
Allocation of the Offer Shares is split between the Institutional Investors and the Retail Investors in equal proportions: 50 percent, corresponding to 4,500,000,000 Offer Shares, to the Institutional Investors; and 50 percent, corresponding to 4,500,000,000 Offer Shares, to the Retail Investors. The Issuer reserves the right to alter the Allocation Split based on the demand expressed by each class of investor.
Net proceeds of N392.5 billion from the capital issuance will enhance its capital adequacy and strengthen its fortress balance sheet. Specifically, N370 billion, representing 94.3 percent of net proceeds, will be spent on growth and expansion of the Group within six months after the capital raise. Acquisitions of Pension Fund Administration / Asset Management Businesses will gulp N 22.49 billion, representing 5.7 percent. This will be applied 24 months after the close of the Offer.
Access Corporation targets N365bn
Access Holdings has closed its bid to raise N365 billion, specifically, through a Rights Issue of ordinary shares to its shareholders.
The proceeds of the Rights Issue would be used to support ongoing working capital needs, including organic growth funding for its banking and other non-banking subsidiaries.
“These banks’ stocks are dropping but it is an opportunity for investors to take a position. There is no need to panic since the capital market is meant for the long term”
Shareholders of Access Corporation are confident that the emergence of Aigboje Aig-Imoukhuede as Chairman will aid its recapitalisation bid.
“His proven track record, experience, and strategic insights position him as the ideal leader to steer Access Holdings towards meeting its lofty targets. During his tenure as CEO, particularly during the recapitalisation directive by the CBN, he steered Access Bank to raise an impressive $2 billion in capital, and this demonstrates his capacity to, once again, lead Access Holdings towards successfully achieving the objectives of our planned Capital Raise and Rights Issue targets,” said Chief Sunny Nwosu, Chairman Emeritus of the Independent Shareholders Association of Nigeria.
Zenith Bank targets N230bn
Zenith Bank has unveiled its plan to raise N230 billion from the financial markets, making it perhaps the least pressured among the Tier-One banks which are mandated by the Central Bank of Nigeria to shore up their capital base to N500 billion in less than two years from now.
FCMB
First City Monument Bank is raising N110 Billion by way of offering 15,197,289,219 ordinary shares of 50 kobo each at ₦7.30 per share.
The Offer is scheduled to close on Wednesday, September 4, 2024.
FBN Holding seeks approval for N300bn
FBN Holdings has disclosed that it will be seeking shareholders’ approval to raise N300 billion in additional capital.
In October, FBN Holdings Plc sought approval from the NGX to raise N139bn in additional capital through a rights issue.
Ahead of its 11th annual general meeting in July, the financial institution had revealed plans to raise capital by way of a rights issue for future expansion projects.
Meanwhile, both the AGM and the capital raise exercise have been put on hold, according to a statement from the bank.
UBA shareholders approve bank’s capital raise plan
The United Bank for Africa Plc shareholders have unanimously approved the bank’s capital raise drive.
The shareholders authorised the board of directors of the bank to raise additional capital through the issuance of securities comprising ordinary shares, preference shares, bonds or any other instruments in the Nigerian and or international capital market.
They said the additional capital raise could be through public offering, private placements and rights issues.
The Chairman, Board of Directors of UBA Plc, Tony Elumelu, assured shareholders that the bank would meet and even surpass the recapitalisation deadline.
