Banking stocks hit N7.91tn market cap amid fresh recapitalisation round

Banking stocks on the Nigerian Exchange Limited recorded a market capitalization of N7.91 trillion at the close of trading on Friday.

This comes as a second group of banks prepares to raise funds to meet the new capital requirements set by the Central Bank of Nigeria.

The market cap of the 13 banks analysed by The PUNCH stood at N6.22tn as of June 3, indicating that between the time that the banks commenced their recapitalisation efforts and now, they have gained about N1.69tn or appreciated by 27.19 per cent.

The financial institutions analysed include United Bank for Africa; Zenith Bank; Access Holdings; FBN Holdings and Ecobank.

Others are Fidelity Bank; Guaranty Trust Holding Company; non-interest bank, Jaiz Bank; Sterling Financial Holding Company; Unity Bank; Wema Bank; FCMB Group and Stanbic IBTC Holdings.

Within the period under review, the banks in the N1tn market cap club have also increased.

From just two, GTCO and Zenith Bank on June 3 to four as of Friday as UBA and FBN Holdings swell the ranks.

The Managing Director of Arthur Stevens Asset Management Limited, Tunde Amolegbe, affirmed that the recapitalisation exercise had boosted the market cap of the lenders, albeit indirectly.

Amolegbe, a former resident/chairman of the Council of the Chartered Institute of Stockbrokers, said, “For banks that have raised additional capital, what you have seen is that their share prices have gone up although they have not allotted the shares, and the process has not finished; their share prices have reacted that they have finished the offer and the reason is simple.

“The stock market is a forward pricing market and analysts have worked on the fact that they now have higher capital into the valuation and they have worked on the fact that higher capital means higher gross income, and that is why you are seeing their share price respond to the fact that these organisations are much bigger now and their capacity to increase earnings have also grown.”

Projecting that the market cap would go higher, Amolegbe noted, “That is the reason I referred to it as indirect, as the higher capitalisation is being driven by higher prices now rather than share capital.  By the time they finish the allotment, the number of issued shares will rise, which means the capitalisation will rise even further.”

The Chief Executive Officer of Cowry Treasurers Limited, Charles Sanni, in a chat with The PUNCH, echoed similar sentiments, saying, “The market capitalisation has not factored in the new shares because they have not been allotted. The performances of the banks are on the back of the profits that they have released and the interim dividend.

“Indirectly, the recapitalisation has an impact because the banks are now bigger having successfully recapitalised. Don’t forget that people are watching to see if the banks have been able to raise the capital and now that they have raised the capital, it has also positioned them to do more business in addition to what they have been doing, as seen from the earnings that they have released thus far.

“It speaks to the fact that people are beginning to see the opportunities that are in there as earnings will improve based on the fact they have more capital to do business.”

Last week, there was heightened buying interest in financial stocks, as liquidity flowed steadily into the market.

The banking index emerged as the week’s top performer, posting a 7.86 per cent week-on-week gain on the back of strong investor sentiments in UBA, FBNH, ACCESSCORP, and STANBIC.

Analysts have said that the positive sentiment followed the release of robust nine-month earnings from banks, providing investors with encouraging insights for year-end expectations.

In March, the apex bank announced new capital thresholds for banks operating in the country.

The CBN in new guidelines on its recapitalisation policy for banks in the country directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn.

According to the acting Director of Corporate Communications, Sidi Ali, who signed the notice, commercial banks with national licences must meet a N200bn threshold, 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 base to N20bn and N10bn, respectively.

Since the announcement, the banks have announced plans to raise fresh capital to meet the new capital target within the two-year frame provided by the CBN.

Based on the CBN circular on recapitalisation, only the share capital and premium capital of the shareholders’ fund portion of the balance sheet will be recognised.

The circular read, “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 shareholders’ funds. (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 licence authorisation. (e) In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularise their position.”

After submitting their plans to the CBN, the banks commenced the raising of capital using a combination of public offers and rights issues. The fresh capitalisation round commenced with Fidelity Bank launching a combined offer worth N127.1bn.

In an email to investors, Fidelity Bank’s CEO, Nneka Onyeali-Ikpe, announced that the offer was oversubscribed.

“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,” she said.

Since then, tier-1 lenders like Guaranty Trust Holding Company, Zenith Bank and Access Holdings have come to the market to raise funds alongside FCMB Group.

Also, Sterling Financial Holdings Company is in the market for N153bn after finalising a $50m capital raise through private placement.

In the middle of this month, the Director-General of the Securities and Exchange Commission, Dr Eromomotimi Agama, stated that the five banks that tapped the market to raise fresh capital were oversubscribed.

“The banks that came to the market are fully subscribed and even oversubscribed,” Agama said.

As the first set of banks close out their offering, new banks are preparing to launch theirs in the coming days.

At least five banks, including FBN Holdings, United Bank for Africa and Stanbic IBTC, have indicated their capital-raising efforts.

The management of FBN Holdings has indicated they intend to seek shareholders’ approval to raise about N350bn at its next Annual General Meeting. It has also opened its N150bn Rights Issue of 5,982,548,799 ordinary shares of 50 kobo each at N25.00 per share on the basis of one new ordinary share for every six ordinary shares held as at the close of business on Friday, 18 October 2024.

The Group Managing Director/Chief Executive Officer of UBA, on the sidelines of the 2024 Annual Meetings of the International Monetary Fund and the World Bank in Washington, ruled out the options of mergers and acquisitions for the bank.

He announced that the bank would start its capital-raising process in a few weeks.

He said, “For UBA, we ruled out acquisition and merger. UBA will raise the capital, and we still have between now and March 31, 2026, but in the next few weeks, we will commence the process.”

He added that UBA had already submitted applications to the Securities and Exchange Commission for approval, noting that UBA was positioned quite strongly to meet that recapitalisation mandate.