Recapitalisation: Uncertainty Rocks Banking Stocks as Investors Lose N1.85tn in 45 Days

. Banking index down 11.78% YtD

. NGX ASI up 31.23% YtD

GTCO, Zenith, FBN Holdings’ Market Value Down N1.9tn

Kayode Tokede

Since the Central Bank of Nigeria (CBN) announced the banking sector recapitulation exercise, March 28, 2024, investors who invested in banking stocks have lost a whooping N1.85trillion in market value, THSDAY can report.

Despite reporting impressive results for the full year ended December 31, 2023 and first quarter ended March 31, 2024 (unaudited), the stock prices of Nigerian Banks on the Nigerian Exchange Limited (NGX) have continued to nosedive as investors trade their stocks with caution amid CBN new policy of recapitulation. 

Between March 28, 2024 and May, 17, 2024, the NGX Banking Index has emerged as the worst performing Index, dropping by -11.78 per cent Year-till-Date (YtD), while the index used in measuring the overall market performance (NGX All-Share Index) closed at positive 31.23 per cent YtD.

In terms of market value, listed Tier-1 banks recorded significant decline as their stock price continued to dwindle.

THISDAY analysis of trading numbers showed that FBN Holdings, Guaranty Trust Holdings Plc and Zenith Bank Plc have depreciated by a combined N1.19 trillion since the CBN announced recapitalisation exercise for Nigerian banks.

As the stock price of FBN Holdings depreciated by 12.6 per cent to close May 17, 2024 at N22.95, its market value fell by N452.28 billion.

The old financial institution had cancelled plans to raise N300 billion capital amid resignation of Managing Director, First Bank Nigeria Limited, Dr. Adesola Adeduntan.

For GTCO, as its stock price also dropped by 12.60 per cent to N39.90 per share, its market value lost about N370.8billion since the CBN announcement March 28, 2024.  

The shareholders of GTCO in May 2024 approved the company’s plan to establish a capital raising programme of $750 million either through public offerings, private placements, rights issues and/or other transaction modes.

In addition, the market value of Zenith Bank went down by N364.2 billion as its stock price dropped by 11.6 per cent to close May 17, 2024 at N32.90 per share from N44.50 per share on March 28, 2024. 

Zenith Bank had revealed that it is taking urgent steps to meet the new N500 billion capitalisation requirement as directed by the CBN.

Other notable banks with significant decline in market value include: Access Holdings, N266.6billion; UBA, N210.3billion and Fidelity Bank Plc, N35.2billion between March 28, 2024 to May 17, 2024.

Analysts have attributed the dwindling banking stocks to panic profit-taking by investors who don’t understand the impact of CBN’s banking sector recapitalisation.

“Banking sector recapitalisation in Nigeria provides a lot of opportunities because these banks are healthy and have a lot of resources. If not CBN removed retained earnings, no banks would need the public to raise fresh capital.

“All these banks have robust retained earnings. CBN is looking for another means to mop-up liquidity in the system and of course, they wanted the banks to be aggressive in mop-up of money in the system using right issues, among other means.

“Banks like Zenith Bank, UBA, GTCO, FBN Holdings and Access Holdings have strong retained earnings which the CBN does not want them to utilise,” said Chief Operating Officer of InvestData Consulting Limited, Mr. Ambrose Omordion

He however, urged investors to buy these banks stocks as they are currently trading at a lower price.

He added that, “These banks’ stocks are dropping but it is an opportunity for investors to take a position. There is no need to panic since the capital market is meant for the long term.”

In 2023, the Governor of the CBN suggested the possibility of raising the minimum capital requirement for banks, despite the sector’s relative stability in recent years.

He noted that the proposed increase is based on the observation that many banks lack sufficient capital to back an economy aiming for a Gross Domestic Product (GDP) of $1 trillion, as targeted by the Federal Government.

Recall that on March 28, 2024, the CBN revised the minimum capital requirements for Banks.

In the new dispensation, commercial banks are facing minimum capital thresholds of N500 billion for international authorisation and N200 billion for national authorisation.

In contrast, those with regional authorisation are expected to achieve a N50 billion capital floor.

Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20 billion and N10 billion, respectively.

The directive, which was contained in a CBN circular emphasised that all banks were required to meet the minimum capital requirement within 24 months commencing from April 1, 2024, terminating on March 31, 2026.

To enable the banks to meet the minimum capital requirements, the CBN urged banks to consider injecting fresh equity capital through private placements, rights issues, and/or offers for subscription; Mergers and Acquisitions (M&As); and/or upgrades or downgrade of license authorisation.

Meanwhile, the CBN said all banks are required to submit an implementation plan (clearly indicating the chosen option(s) for meeting the new capital requirement and various activities involved with their timelines no later than April 30, 2024.