Four of the tier-1 banks in the country, FBN Holdings, Access Holdings, Guaranty Trust Holding Company Plc and United Bank for Africa Plc have indicated plans to raise about over $3.03bn (N3.46tn) in fresh capital.
This came barely one month after the Central Bank of Nigeria directed Deposit Money Banks to recapitalise.
According to The PUNCH findings on Sunday, the four tier-1 banks announced plans to raise funds from both the international capital market and the local market.
At least two of the financial institutions, FBN Holdings and GTCO announced their plans to raise fresh capital last week, while Access Holdings said it would raise capital in both naira and US dollars.
FBN Holdings in a notice of its Extraordinary General Meeting filed with the Nigerian Exchange Limited disclosed that it would be seeking shareholders’ approval to raise N300bn additional capital.
According to the notice, shareholders will consider and vote on the special business “that the company be and is hereby authorised to undertake a capital raise of up to N300,000,000,000.00 (three hundred billion naira)”
The financial institution is seeking to raise the funds via a public offering, private placement, or rights issue in the Nigerian or international capital markets.
Similarly, GTCO revealed that it would be seeking shareholders’ approval to raise $750m.
In a notice on the capital raising, GTCO said the fund would be raised “through the issuance of securities comprising ordinary shares, preference shares, convertible and/or non-convertible notes, bonds or any other instruments, in the Nigerian and/or international capital markets, either as a standalone issue(s) or by the establishment of capital raising programme(s), whether by way of public offerings, private placements, rights issues and/or other transaction modes, at price(s), coupon or interest rates determined through book building or any other acceptable valuation method or combination of methods, in such tranches, series or proportions, within such maturity periods and at such dates and upon such terms and conditions as may be determined by the board of directors of the Company (the Board), subject to obtaining the requisite approvals of the relevant regulatory authorities.”
Similarly, Access Holdings is seeking to launch a capital raising programme to raise funds in two currencies, the Nigerian naira and the US dollar.
In a statutory notice filed with the NGX, Access Holdings said that it was looking at raising $1.5bn via a share sale or bond offering. The parent company of Access Bank, said it would also ask existing shareholders for permission to raise N365bn through a rights issue at its next Annual General Meeting scheduled to be held this month.
The United Bank for Africa also revealed plans to raise fresh capital to meet the new regulatory benchmark.
In a statement issued late Sunday, the banking group said it is actively exploring a well-defined strategy to boost its capital base and ensure compliance within the regulatory time frame.
UBA’s Group Managing Director/Chief Executive Officer, Oliver Alawuba, in the statement, said, “This strategy may include a combination of options such as Rights Issue or Private Placement. The fact remains that we are confident in our ability to meet the CBN’s capital adequacy requirements and will keep investors informed as we progress.”
The PUNCH gathered that the banking group is looking at raising about $200m from the international capital market and raising another round of funding from the local market for an amount yet to be specified. The bank is expected to release a statement in this regard this week.
Wema Bank
As of the time of this report, tier-2 bank, Wema Bank said it had raised N40bn during its rights issue and is waiting for regulatory approval.
The bank’s MD, Moruf Oseni, said that it would “Accelerate its capital management plans and ensure we embark on the journey to raise the required capital as quickly as possible.”
Sterling Bank Limited recently raised N21bn through the Sterling Investment Management SPV Plc under its N30bn Debt Issuance Programme.
On Friday, Zenith Bank said it would be asking shareholders for approval to increase its issued share capital from N15,698,246,893.50 divided into 31,396,493,787 ordinary shares of N0.50 Kobo each to N31,396,493,787 through the creation of new shares.
It has yet to state the value of the additional capital it intends to raise via the creation of fresh shares. However, it was stated, that the capital raising programme is being proposed to happen on both the Nigerian and international capital markets.
According to the issuing house, Afrinvest Capital Limited, the offer opened on March 27th, 2024, and closed on Monday, April 8, 2024. The proceeds will be used to purchase 10 Year Notes issued by Sterling Bank Limited.
The CBN had in a circular in late March to commercial, merchant and non-interest banks and promoters of new banks announced the review of the capital requirements for the operations of the affected categories of banks in the country.
Citing both domestic and global shocks, the apex bank in a statement signed by its Acting Director, Corporate Communications, Sidi Ali, said it had become necessary to raise the capital base of the banks.
Thus, the CBN directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn while those with regional authorisation are expected to achieve a N50bn capital floor. Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20bn and N10bn, respectively.
According to the CBN circular, only the share capital and share premium items on the Shareholder Fund portion of the balance sheet will be recognised in this particular round of recapitalisation.
The apex bank circular said, “For Existing Banks a. The minimum capital specified above shall comprise paid-up capital and share premium only. For the avoidance of doubt, the new capital requirement shall NOT be based on the Shareholders’ Fund. b. Additional Tier 1 Capital shall not be eligible for the purpose of meeting the new requirement. c. All banks are required to meet the minimum capital requirement within a period of 24 months commencing from April 1, 2024 and terminating on March 31, 2026. d. Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio requirement applicable to their license authorization. e. In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularize their position.”
For proposed banks, the CBN said that their minimum capital requirement shall be paid-up capital and applicable to all new applications for banking licences submitted after April 1. 2024.
Meanwhile, an analysis by The PUNCH put the fresh capital to be raised by 26 banks including commercial banks, merchant banks and non-interest banks at about N4tn in the next 24 months.
Although analysis showed that 12 financial institutions, including Access Holdings, FBN Holdings, FCMB Group, Fidelity Bank Plc, Stanbic IBTC, Zenith Bank Plc, United Bank for Africa, Sterling Financial Holdings, Guaranty Trust Holding Company Plc, Wema Bank, Polaris Bank and non-interest bank, Jaiz Bank have about N4.8tn in retained earnings, they are not allowed to add this to the capital base due to the CBN directive.
Analysts react
Meanwhile, the capital raising efforts by the financial institutions, according to a capital market analyst, Ambrose Omorodion, could lead to dilution of the shareholding structures and earnings of the firms.
He added that they would create more shares to accommodate the new investors.
To tackle this situation, Omorodion, said that the financial institution would have to improve on their performance to be able to deliver value to stakeholders.
He said, “The capital raising is going to dilute the shareholding structure and earnings of the banks unless they double their performance in order to justify their price to shareholders. In all, there are opportunities to make money from this process.”
Thus far, talks of mergers and acquisitions have not been pronounced in the current recapitalisation exercises as Omorodion said that small banks were the most likely to consider that option.
“Mergers will be for tier-2 banks. The bigger banks will likely go for the small banks to increase their operational base across the country and beyond,” he said.
Investment banker and stockbroker, Tajudeen Olayinka, echoed the same sentiments saying, “I think most of them may opt for mergers but the big ones would be able to find their way or even acquire some of the small ones.
“They (smaller banks) can also merge with the big ones and a few of them can come together to merge. That is likely to happen. We might even see some investors outside of the banking space come in to also acquire them. Some big-time investors are interested in coming into the space and giving the banks the required capital, just to make sure that they meet the required capital but that would be dependent on the leaning of the core investors in those banks.”
However, in an April 10 report on its website, Fitch Ratings also stated that small banks might struggle to meet the new threshold.
“Some small and medium-sized banks may struggle to raise the necessary capital, leading to increased M&A. This would result in a more concentrated banking sector, with higher barriers to entry, greater economies of scale and stronger long-term profitability,” FitchRatings said.
It added that “No Fitch-rated banks currently meet the new requirements. The combined paid-in capital shortfall for Fitch-rated banks is about NGN2.6tn ($2.1bn). We expect a marked increase in equity issuance over the next two years.”
Fitch Ratings maintained that “Some small and medium-sized banks may struggle to raise the necessary capital, and could be acquired by larger banks. Certain domestic systemically important banks have particularly high capital ratios but are significantly below the new paid-in capital requirements, and may prefer to consider acquisitions over seeking fresh capital injections.”
It, however, said, “We do not expect licence authorisation downgrades to play a major role in meeting the new requirements as they would necessitate divesting foreign subsidiaries or disentangling regional branch networks.”
CBN had given banks three ways to meet the new threshold. They include injection of fresh equity capital through private placements, rights issues and/or offers for subscription; Mergers and Acquisitions; and/or upgrade or downgrade of license authorisation.
Banking stocks sell-offs
Sell-offs in banking stocks on the Nigerian Exchange during the two days of trading in the past week led to a loss of about N633bn despite strong earnings performance reports by the top banks.
This marked the first consecutive weekly loss on the equity market as the All-Share Index depreciated by 1.08 per cent to 102,312.56 points, with market capitalisation declining by 1.59 per cent to N57.864tn.
Some analysts blamed the market’s pullback on economic headwinds compounded by anticipation surrounding the publication of consumer price inflation data for March.
Similarly, investors continued their portfolio rebalancing activities amid the outcome of Friday’s NT-Bills auction, which offered attractive yields.
Trading activity was downbeat in the past week, as 1.132 billion shares worth N28.650bn were exchanged in 21,921 deals, lower than the 3.680 billion shares valued at N57.892bn that were traded in 40,726 deals in the previous week.
On the sectoral performance, it was a market-wide bearish performance as the banking index led the laggards by 7.22 per cent week-on-week, driven by adverse price movements in Zenith Bank, Guaranty Trust Holding Company, Access Holdings and FBN Holdings.
Trailing were the insurance (2.45 per cent), consumer goods (1.33 per cent), oil & gas (0.28 per cent), and industrial goods index (0.23 per cent), which got dragged by southward movement in Flourmills, Sunu Assurances, Dangote Sugar, Eterna Plc, Lafarge and Abbey Mortgage Bank, respectively.
At the close of the week, the best-performed stocks included Morison Industries, Oando, Transcorp, DEAPCap, and Omatek as their share prices trended upward by 21 per cent, 11 per cent, 10 per cent, 10 per cent, and nine per cent, in that order.
Furthermore, the top traded stocks by volume were United Bank for Africa (455.7m units), Zenith Bank (423.5m units), and GTCO (329.7m units), while Zenith Bank (N17.1bn), GTCO (N13.9bn), and UBA (N12.3bn) led in terms of value.
Looking ahead, analysts at Cowry Research said, “The current trend of corrections is expected to persist as market fundamentals change increasing volatility, portfolio rebalancing, and sector rotation by investors and fund managers. We think investors will closely monitor expected earnings numbers, published macroeconomic data and government policy direction for guidance.”
Afrinvest analysts in their weekly market update projected, “We expect the selloffs in the bourse to linger in the absence of positive catalysts. Our bearish prognosis is mainly influenced by the lacklustre projection for banking stocks. Precisely, jitters around share dilution effect of the industry recapitalisation exercise and investor uncertainty around earnings potential have heightened as CBN toughens regulations.”
