Recapitalisation: Apathy Hits Banking Stocks as NBI Emerges Worst Performing Indicator in H1

Kayode Tokede

Following banking sector recapitulation exercise announced by the Central Bank of Nigeria (CBN), in March this year, the NGX Banking Index declined by 7.47 per cent to emerged as the worst performing indicator on the local bourse in H1 2024.

This is coming at a time investors average return on the stock market of the Nigerian Exchange Limited (NGX) appreciated by 33.81 per cent Year-till-Date growth (YtD).

According to analysts, the poor performance by the banking sector, which usually leads other indicators, is as a result of investors’ cautious trading in the banking stocks.

The CBN announced the banking sector recapitulation exercise, March 28, 2024, and investors who invested in the banking stocks have maintained caution trading as indicated in the NGX Banking Index (NBI) -19.37 per cent Quarter-till-Date (QtD) performance.

THISDAY analysis of NGX trading data for the first half of 2024 revealed that the NGX AseM Index, NGX Industrial Goods Index and NGX Consumer Goods Index at 135.25 per cent, 73.14 per cent and 41.05 per cent YtD growth, respectively led other indices on the exchange.

Despite reporting impressive first quarter (Q1) ended March 31, 2024 unaudited results, the stock prices of Zenith Bank Plc, Access Holdings Plc, United Bank for Africa Plc, and FBN Holdings Plc declined in H1 2024 under review.

The stock price of Stanbic IBTC Holdings Plc, Fidelity Bank Plc, and Unity Bank Plc also recorded significant decline.

However, Wema Bank Plc with a successful capital raising exercise outperformed Ecobank Incorporated Plc (ETI), Guaranty Trust Holding Company Plc, among others in stock price appreciation in H1 2024.

The data showed that investors in Stanbic IBTC Holdings recorded the highest price loss as the financial institution that opened trading this year at N69.65 per share, dropped by 25.34 per cent to close at N52.00 per share June 28, 2024.

This was followed by Access Holdings that dropped by 18.14 per cent to close Junne 28, 2024 at N18.95 per share from N23.15 per share atn 2023 close. UBA closed June 28, 2024 at N22.45 per share, about 12.4 per cent drop in H1 2024 from N25.65 per share the stock closed for trading in 2023.

Commenting, the Chief Operating Officer of InvestData Consulting Limited, Mr. Ambrose Omordion, attributed the dwindling banking stocks to panic profit-taking by investors who don’t understand the impact of CBN’s banking sector recapitalisation.

He said, “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 those 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 utilize.”

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

He added, “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.”

On the sector’s recapitalisation, Investment banker and stockbroker, Mr. Tajudeen Olayinka in a chat with THISDAY stated that banks accessing the capital market to raise capital is welcome development, stressing that the stock market is ready to support banks in their quest to meet CBN requirements.

“The truth is that most banks may not be able to raise as much as they require from the stock market at this time because of high interest rate, among other factors. Ordinarily, banks could have raised as much as they required at a lower cost of equity and as it is now, they may have to consider a higher cost of equity.

“For that reason, some will have to go by the way of right issues and public offer like what Fidelity Bank is doing right now. The exercise will attract foreign investors and local investors are ever ready but may not show much interest due to weaker purchasing power,” Olayinka explained.

In 2023, the Governor of the CBN, Olayemi Cardoso 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.

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.