Fortifying Nigeria’s Financial Future

A strong and resilient banking sector bolsters economic growth and enhances shareholder returns. Efficient financial intermediation reduces the cost of capital, enhances capital accumulation, bolsters total productivity, and fosters investor confidence. However, with total banking assets estimated at $73 billion (bn) (52% of GDP), Nigerian banks lag behind its peers like South Africa ($429bn), Brazil ($2.3trn) and Indonesia ($729bn).

A low asset-to-GDP ratio weakens the banking sector’s resilience to economic shocks, potentially heightening macroeconomic instability and constraining credit access for businesses, households, and even governments. To fortify the banking sector, ensure financial stability, and foster economic growth, the Central Bank of Nigeria (CBN) recently increased the capital requirements of all banks to N500bn for banks with international footprints, N200bn for national banks, and N50bn for regional banks. This is the second bank recapitalization exercise in two decades. The first was in 2004/05.

A legacy of strength, innovation, and market leadership in banking
During the first recapitalization exercise of Nigerian banks in 2004/05, FBNHoldings successfully raised N100bn, surpassing the minimum requirement and positioning itself as a leader in the sector. Funds were raised through public share issuance and private placements, attracting significant local and international investor interest. This solidified FBNHoldings position in the Nigerian banking industry and led to a significant boost in its financial and operational performance. Post-recapitalization, gross earnings increased by 32%, while net income surged by 57%. Strategic investments in technology strengthened its digital banking platform, meeting the growing demand for online banking. These efforts reflected the positive impact of the reform on FBNHoldings growth.

Strengthening capital for growth and stability
In response to the new capital requirement by the CBN, like other banks, FBNHoldings is raising N149.56bn through a rights issue. The bank’s strong performance in the last five years positions it well to leverage this additional capital for continued growth.
FBNHoldings has witnessed impressive growth, with gross earnings rising by 156% from N627bn to N1.59trn, profit before tax surged by 328% to N358bn, and profit after tax also increased from N73bn to N310bn in five years. This is a reflection of the bank’s efficient management and optimized income streams, especially in the area of digital banking. Shareholders’ funds have more than doubled, from N661bn to N1.7trn, positioning the bank for stability amid economic challenges. Total assets grew from N6trn to N16.9trn, enhancing FBNHoldings lending capacity.
Within this period, the cost-to-income ratio improved from 69% to 46%, while non-performing loans reduced from 26% to 4.7%, strengthening asset quality. The company’s share price surged by 325%, showing investor confidence.

First Bank of Nigeria, one of the country’s oldest and largest financial institutions, independently met the CBN’s 2004 recapitalization requirement of N25bn. With thirteen decades of resilience in the banking sector. The company has consistently maintained its position as a Tier 1 Nigerian bank with a balance sheet size of N27trn, 732 branches, and over 43 million customer accounts. This success is driven by its extensive branch network and strong customer base.
The N149.56bn rights issue is well-timed to support FBNHoldings growth, support its ability to meet regulatory capital requirements, and explore new opportunities; the discounted rights issue price of N25 presents an attractive opportunity for existing shareholders.
The additional capital will further cushion the bank against economic shocks, maintain competitive advantage, and enhance its capacity to explore new growth opportunities. However, the success of this capital raise will depend on effective fund deployment and sustaining the bank’s growth momentum.

Robust growth potential, but watch for risks
FBNHoldings is positioned to drive shareholder value through a strengthened balance sheet and a revitalized leadership team, ready to pursue sustainable growth and operational excellence. FBNHoldings’ rights issue presents a solid opportunity for existing shareholders, offering an attractive entry price of N25 per share, below the market price.
With a stronger capital base, FBN Holdings is well positioned to navigate economic challenges and offer long-term growth potential. The bank’s impressive financial performance suggests that additional capital could accelerate further expansion.

In a competitive landscape with banks offering attractive fees and interest rates, FBNHoldings faces the risk of tighter profit margins and higher customer churn. Economic volatility and regulatory changes add further complexity to its operations. To stay ahead, FBN must navigate market pressures, innovate, and differentiate its services. Strategic responses to customer needs and regulatory shifts are key to maintaining a strong market share. FBN Holdings’ ability to adapt will determine its continued success.

Additionally, non-participating shareholders may face dilution of ownership and voting rights as other investors acquire additional shares.

Written by Bismarck Rewane