Recapitalisation: Investors Set For N3.894trn Stake In Banks

As the banks begin their recapitalisation exercise, analysts say the capital market investors are set for the N3.894 trillion stakes in the banks, just as the Nigerian Exchange (NGX) Limited is well-positioned to support the sector in raising funds.

On March 28, 2024, the Central Bank of Nigeria (CBN) issued a directive to financially reshape the domestic money banks (DMBs) theatre of competition. In a direct memo, the regulator revised the capitalisation requirements, setting new benchmarks for banks with international operations at N500 billion, national licences, N200 billion, and regional licences, N50 billion. This directive, a crucial step towards a stronger banking sector, initiates a time-sensitive two-year journey that will start on April 1, 2024, and end on March 31, 2026.

Going by the data available, commercial banks in the country would require a combined N3.894 trillion to meet the new baseline capital requirements. This will necessitate capital raising efforts from both domestic and international markets.

Under commercial banks with international authorisation of N500 billion, in meeting with the new capital base, Access Bank, Fidelity Bank, FCMB, First Bank, Guaranty Trust Bank, Union Bank, United Bank for Africa and Zenith will be raising capital of N248.19 billion, N370.30 billion, N374.71 billion, N248.66 billion, N361.81 billion, N351.91 billion, N384.19 billion, and N229.25 billion respectively.

Also, CitiBank Nigeria Limited, Polaris Bank, Stanbic IBTC Bank, Standard Chartered Bank Limited, Sterling Bank, Titan Trust Bank, Unity Bank, and Wema Bank will be adding a new capital of N185.56 billion, N149.57 billion, N90.74 billion, N154.58 billion, N142.85 billion, N170.80 billion, N183.67 billion, and N184.87 billion respectively

Looking at multiple options to consider for the recapitalisation, analysts said the banks can embark on fund raising or restructuring.

They explained: “The Banks will invite existing shareholders to purchase additional new shares in the bank at a discounted price relative to the current market price; inject fresh capital via private placement (pre-selected private investors); and raise debt capital through Holding Company for Banks that operate a holding company structure which can then be injected as equity capital in the banking subsidiary.”

While on restructure, they said “reducing international portfolio, mergers and acquisitions (M&A), and licencing realignment by downgrading or changing their existing licences and also expanding footprint through non-banking licence authorisation.”

As of May 12, 2024, two financial institutions had gotten their shareholders’ approval to raise funds. Shareholders of Access Holdings Plc, at the second Annual General Meeting (AGM) endorsed the group’s plan to establish a capital raising programme of up to $1.5 billion as well as the subset initiative to raise up to N365 billion through a rights issue, while Guaranty Trust Holding Company (GTCO) Plc has gotten its shareholders’ approval to establish a capital raising programme of $750 million either through public offerings, private placements, rights issues, and/or other transaction modes.

The president, Chartered Institute of Stockbrokers (CIS), Oluropo Dada stated that “the total amount being raised is just about $3.7 trillion, which the market can easily absorb given the depth and the breadth of the market.

“Most of the big banks, Zenith Bank, GTCO, Access and UBA, will end up making a net profit of over N1 trillion each at the end of the financial year given the Q1, 2024 performance.”

He said, “How much is N3.7 trillion in naira terms? I have reasoned that since the retained earnings are not allowed as part of shareholders’ funds, I see many big banks paying mouth-watering dividends at the end of the year, thereby encouraging shareholders to take up their rights. Nigerian assets are cheap now and I can see many foreign investors taking over some of the banks in Nigeria.”

The vice president, Highcap Securities Limited, Mr. David Adnori stated that “looking at the current size of the Nigerian equities market capitalisation of about N55 trillion, this tells us about the absorptive capacity of the capital market in Nigeria.

“Also, with the Nigerian capital market being internationalised, we may not even judge from the current strength of the capital market in Nigeria alone, because these offers will be made to the global investing public.”

He further said that “the present Nigerian Exchange has a world-class technology, and its reach is wide. So, if the applications can be made seamlessly with the use of an e-public offering platform, it means that the offerings will be subscribed to by investors globally, who, with any handheld mobile device, can subscribe from anywhere they are in the world.”