Five early-bird Nigerian banks have successfully raised approximately N1.27 trillion from the Nigerian Stock Exchange (NGX) in an ongoing recapitalization drive aimed at strengthening the banking sector. This capital injection underscores strong investor confidence in Nigerian banks, despite challenges like the government’s windfall tax on 2023 foreign exchange (FX) gains.
The recapitalization move comes as Nigerian banks prepare to meet new regulatory requirements following the announcement of a sector-wide recapitalization exercise by the Central Bank of Nigeria (CBN) in March 2024. The program mandates banks to raise fresh capital within 24 months, from April 1, 2024, to March 31, 2026, to meet the minimum requirements for their banking licenses. This initiative is expected to bolster the financial services sector and provide a more robust foundation for Nigeria’s economy.
The Capital-Raising Efforts
The five banks—GTCo (N400.5 billion), Access Holdings (N350.1 billion), Zenith Bank (N289.1 billion), Fidelity Bank (N127.1 billion), and FCMB Group (N110.9 billion)—have completed their capital-raising processes, with some even exceeding their targets through oversubscriptions. Additionally, Sterling Financial Holdings Company is in the process of raising N153 billion after securing a $50 million private placement. This total capital raised amounts to N1.277 trillion so far.
This fundraising effort is critical in addressing the sector’s capital shortfall, which KPMG estimates to range between 35% and 90% of the new minimum requirements for Nigerian banks. The industry’s total capital gap is estimated at around N4.2 trillion, a figure the recapitalization effort aims to close to maintain the banks’ role as key drivers of economic growth.
Despite the government’s windfall tax on foreign exchange gains, investor confidence in the banking sector remains high. Many investors have increased their stakes or acquired new shares in these financial institutions, reflecting optimism about their future prospects. The demand for banking stocks has been particularly strong, as evidenced by oversubscriptions in several of the banks’ capital raises.
This sentiment was echoed by Jibola Odedina, Managing Director and CEO of Coronation Securities Limited. He noted that adequately capitalized banks are better positioned to facilitate large transactions, engage in complex business ventures, and drive overall economic growth. “Recapitalisation is not just about compliance but about strengthening the banking sector to withstand economic downturns and improve resilience,” Odedina said. He also highlighted that banks with stronger capital bases are better equipped to compete globally, which could enhance Nigeria’s position in the international banking scene.
Recapitalisation and MSMEs in Africa
The recapitalization initiative is expected to have significant implications for MSMEs (micro, small, and medium enterprises) in Africa, particularly those engaged in sectors dependent on banking services. By bolstering their capital reserves, Nigerian banks will be better able to provide larger loans, improve access to credit for MSMEs, and support the economic development of smaller businesses across the continent.
This development is crucial, as MSMEs are often the backbone of economies in Africa, providing employment and driving growth. With better-capitalised banks, MSMEs could benefit from increased stability in the financial system, making it easier to access the financing needed to grow their operations.
Furthermore, the recapitalization effort aligns with a broader trend among African banks of enhancing their capacity to take on larger transactions, as more businesses look to expand beyond local markets. Nigerian banks, with stronger balance sheets, will be better positioned to partner with MSMEs, offering them competitive loan rates and financial products tailored to their needs.
A Boost from NGX Invest Platform
The banks’ successful capital-raising efforts have been supported by NGX Invest, a digital platform launched by the Nigerian Exchange (NGX) to facilitate public offerings and rights issues. The platform has streamlined the entire capital-raising process, allowing banks to reach a wider pool of investors and ensuring more transparency and efficiency.
Jude Chiemeka, CEO of NGX, described NGX Invest as a game-changer in Nigeria’s financial markets. “This platform addresses the need for more efficient management of public offers and rights issues. By improving the process for reconciliation and allotments, we are reducing unclaimed dividends and increasing investor confidence,” Chiemeka said. He further noted that this innovation plays a pivotal role in accelerating capital-raising efforts for Nigerian companies, especially banks.
Impact on Stock Market and Long-Term Outlook
The recapitalization efforts have positively impacted Nigeria’s equity markets. Year-to-date, the NGX Banking Index has risen by 4.24%, while the overall stock market has grown by 31.99%, demonstrating increased investor confidence.
A report from Capital Bancorp Group, a financial advisory firm, indicated that the recapitalization process could lead to heightened share price volatility as banks issue new shares. While the issuance of new shares may dilute the ownership percentage of existing shareholders, the long-term outlook for banks remains positive. A stronger capital base will allow banks to weather economic challenges, attract more deposits, and sustain lending operations, thereby boosting profitability and shareholder value.
Recapitalization also prepares Nigerian banks for competition in global markets. Odedina of Coronation Securities observed that no Nigerian bank currently ranks among the top tier in terms of capital globally. However, with the fresh capital injection, Nigerian banks are expected to improve their competitiveness on the African continent and internationally. The N1.27 trillion raised so far by Nigerian banks in their recapitalization efforts is a significant milestone, demonstrating investor confidence in the sector’s potential for growth. The recapitalization drive is not only crucial for meeting regulatory requirements but also for positioning Nigerian banks to better support the broader economy. As the process continues, MSMEs in Africa stand to benefit from the increased stability, lending capacity, and investment opportunities that stronger, more resilient banks can provide.
With the NGX Invest platform enabling smoother transactions and the backing of the CBN’s recapitalization mandate, Nigeria’s banking sector is on a path to greater financial strength, which could lead to wider economic benefits across Africa.
