Banking stocks on the Nigerian Exchange Limited (NGX) recorded a remarkable increase in market capitalization, reaching N7.91 trillion as of the close of trading last Friday. This surge reflects the impact of ongoing recapitalisation efforts by Nigeria’s top financial institutions as they move to meet new capital requirements set by the Central Bank of Nigeria (CBN).
In March, the CBN introduced a new capital threshold, mandating banks with international licenses to hold a minimum of N500 billion in capital, while those with national licenses must reach N200 billion. Since the announcement, banks have been actively working to raise fresh capital, using public offers and rights issues to meet these requirements within the two-year deadline set by the CBN, which spans from April 2024 to March 2026.
Between June and October 2024, the banking sector’s market cap jumped by N1.69 trillion, or 27.19%, with strong performances from major players like United Bank for Africa (UBA), Zenith Bank, Access Holdings, FBN Holdings, and Ecobank. Within this period, the number of banks achieving a N1 trillion market cap rose from two (GTCO and Zenith Bank) to four, as UBA and FBN Holdings joined the ranks.
The increase in banking stocks is attributed to heightened investor interest, bolstered by robust nine-month earnings and interim dividends. Analysts note that the recapitalisation process, while still underway, has positively affected the stock prices of banks that have initiated their capital-raising efforts. Tunde Amolegbe, Managing Director of Arthur Stevens Asset Management Limited, explained that the anticipation of higher earnings driven by increased capital has prompted investors to act, even though the shares have not yet been allotted.
“The stock market is a forward-pricing market. Analysts have factored in the banks’ increased capital, anticipating that this boost in capacity will drive greater earnings potential,” Amolegbe said. Charles Sanni, CEO of Cowry Treasurers Limited, added that with the recapitalisation, banks are better positioned to expand their operations and meet rising demand, further strengthening investor confidence.
Investor confidence was also evident in last week’s trading, with the banking index on the NGX emerging as the top performer, recording a 7.86% week-on-week gain. Key players like UBA, FBN Holdings, Access Holdings, and Stanbic IBTC Holdings saw significant buy-ins, driven by the release of promising financial reports and projections for the end of the fiscal year.
As the first round of recapitalisation efforts closes, new groups of banks are set to launch their fundraising activities. FBN Holdings, for instance, announced plans to raise N350 billion, along with a N150 billion rights issue currently open to shareholders. UBA also confirmed its strategy, ruling out mergers and acquisitions while focusing on organic growth to meet the capital demands.
The recapitalisation drive, while boosting market sentiment and share prices, is anticipated to further transform Nigeria’s banking sector by strengthening its financial resilience and operational capacity. This positions the sector well for the challenges of the evolving financial landscape, both domestically and in the broader African market.
