Proshare Advises Banks to Improve Shareholders’ Returns Post-recapitalisation

Oluchi Chibuzor

Analysts at Proshare, a research and investment information provider, have advised banks in the country to ensure that the higher capital levels they would achieve post-recapitalisation to improve shareholders’ returns.

Speaking at the launch of the Proshare Bank Strength Index (PBSI), which evaluated banks using a pool of financial metrics, the Chief Economist/Managing Editor, Proshare Nigeria, Teslim Shitta-bey, noted that with an ongoing Central Bank of Nigeria-inspired banking sector recapitalisation programme, investment in financial technology, customer service scalability, and digital asset engineering would take a fresh turn between 2024 and 2026.

“With higher capital levels, banks must use the larger amounts of cash available to improve shareholder returns and customer service experiences.
“Many banks will get cut at the knees by lacking a deliberate strategy to transition from cash flow to value creation,” he added.
As lenders expand in size and scale to meet the demand of a $I trillion economy, analysts at Proshare called for attention to macro and microeconomic risks, as seen in the United States of America (US).

The PBSI listed Access Holdings, Zenith Bank, FBN Holdings, Ecobank Transnational Incorporated, the United Bank for Africa (UBA) and GTCO as Tier 1 banks in the country.
The classification, according to Proshare, underscored their robust performance across various financial metrics based on audited statements for the financial year 2023.
Shitta-bey stressed that raising Nigerian banks’ equity base was no guarantee for economic growth and development.
However, Proshare noted, “Transforming bank equity into drivers of economic growth requires more than money, it requires a coordinated public and private sector plan, with what Proshare analysts have repeatedly called a whole-of-government approach to policies, programmes and processes.

“Tier 1 banks tend to edge out their tier 11 counterparts for big-ticket public and private sector transactions. Hence, the evaluation metrics for bank classification need to be continuously revised, especially when big appears to be beautiful.

“Over the last two decades, the financial payment and settlement business has increasingly grown on the back of cloud-based blockchain technology, which may be destined to improve the efficiency of financial transactions and the quality of person-to-person (P2P) and business-to- business (B2B) relationships.”

Looking at the Nigerian economy and banking sector, Proshare analysts noted that, “Nigeria’s GDP in 2005 was N38.78 trillion and rose to N77.94 trillion, roughly two times in 2023, suggesting an average annual growth rate of 3.55 per cent in the last two decades.

“However, between 2000 and 2005, bank equity sizes grew over ten times or by 1150 per cent from N2bn to N25 billion.

“In other words, for a decade and a half, banks have used ten times more equity in their businesses than before 2005, yet the country’s GDP growth has been modest.”

The report further stated that raising Nigerian banks’ equity base was no guarantee for economic growth and development.

“Transforming bank equity into drivers of economic growth requires more than money, it requires a coordinated public and private sector plan, with what Proshare analysts have repeatedly called a whole- of-government approach to policies, programmes and processes,” it added.