By Seun Ibiyemi
Despite the economic challenges facing Nigeria, five tier-one banks recently approached the Nigerian stock market for capital, raising about N1.27 trillion as the push for sector-wide recapitalisation heats up.
This indicates that investor confidence in Nigeria’s banking stocks remains strong. Even the government’s windfall tax on banks’ 2023 foreign exchange (FX) profits hasn’t deterred equity investors from either boosting their stakes or purchasing new shares in these financial institutions.
Since the announcement of the banking recapitalisation exercise on March 29, 2024, several banks have tapped into the equities market for capital. Five banks have completed this process, while one is still ongoing.
The banks involved are GTCo (N400.5 billion), Access Holdings (N350.1 billion), Zenith Bank (N289.1 billion), Fidelity Bank (N127.1 billion), and FCMB Group (N110.9 billion).
Also, Sterling Financial Holdings Company is in the market for N153 billion 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 managing director/chief executive officer, Coronation Securities Limited, Jibola Odedina..
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,” Fidelity Bank’s CEO, Nneka Onyeali-Ikpe, 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.
The CEO of NGX, Jude Chiemeka, 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 the first half of the year that banks’ race to capitalisation might increase share price volatility and push stock prices up.