Banking Stocks Flat Amid Recapitalisation As Investors Lose N25bn

Banking stocks performance on the Nigerian Exchange Limited yesterday remained unchanged amid recapitalisation announcement by the Central Bank of Nigeria (CBN), as the local equities nudged slightly lower with the overall market capitalisation slipped N25 billion.
The NGX Banking Index yesterday closed at 1,028.88 points from 1,029.63 it closed on March 28, 2024.

The All-Share Index declined by 43.92 per cent, representing a loss of 0.04 per cent, to close at 104,518.14 points. Similarly, the overall market capitalisation value lost N25 billion to close at N59.096 trillion.
The market negative performance was driven by price depreciation in large and medium capitalised stocks which are; Julius Berger, UAC of Nigeria (UACN), Stanbic IBTC Holdings, FBN Holdings (FBNH) and Nigerian Breweries.

Speaking on the performance, a stockbroker, Mr. Tunde Oyediran stated that, “some of the banking stocks went up and this portends that the expectation of the investor is that the prices of banking stocks will go up as a result of the recapitalisation.”

He noted that, “we cannot compare the N500 billion capitalised bank with N30 billion value of a bank. So, things will change, this development is a good step for the banking sector and a booster to the capital market.”

A broker with Calyxt Securities Limited, Mr. Aziz Bello stated that, “we are not able to say that the announcement had a direct impact on the market, because actually we have been expecting the corporate actions from the banks anyways.

“So, it is expected that in the near to medium term, we can expect the reprising of the banking stocks. But for now, the market performance of these stocks is not really correlated to the announcement. The transactions on the market were not really a direct response to the announcement by the Central Bank.”

He noted that the recapitalisation of the bank will have a positive impact on the Nigerian capital market, saying that “the announcement is due and timely, because the last time the Central Bank mentioned this was at the banking summit last year.

“So, it was expected all the way because we need to have stronger institutions with better and stronger risk management capacities to withstand any shock.”

Analysts at Cardinalstone stated that, “given the new capital requirements, we expect a lot of equity raises through the prescribed options of private placements, right issues, offers for subscription, and mergers & acquisitions.

“A few banks may also have to switch licences of authorisation to reduce the burden of compliance. Prior to the CBN’s announcement, Access Holdings announced a planned capital raise of N365 billion, which comes after Fidelity Bank’s private placement, and FBN Holdings’s proposed N150 billion capital raise.”

The Research Firm added that, “the injection of new capital should drive an expansion in earning assets across our coverage. This should support medium to long-term earnings despite short-term concerns over dilution.

“The 24-month timeline for accomplishing this capital raise should enable banks to seek out the best route to recapitalize without negatively impacting business operations. However, plans have to be communicated to the CBN by April 30, 2024.”