At 7.76% YtD, Banking Index Outperforms Others Amid Sector’s Recapitalisation
Kayode Tokede
Following the sector’s recapitalisation exercise directed by the Central Bank of Nigeria (CBN), banks’ stocks have witnessed demand this year posting a Year-till-Date (YtD) gain of 7.76 per cent to outperformed others indicators on the Nigerian Exchange Limited (NGX).
Currently at 7.76 per cent, the NGX Banking Index has out performed the overall market indicator, the NGX All-Share Index, which closed February 28, 2025 at 4.76 per cent.
After a double-digit capital gain in 2024, bank stocks are showing early signs of a bullish year as most of the offers raised have been oversubscribed.
The likes of Zenith Bank Plc, Access Holdings Plc, FCMB Group Plc, Fidelity Bank Plc have successfully raised capital.
However, Guaranty Trust Holding Company (GTCO), that is yet to complete its capital raising exercise among other Nigerian banks are seeking to raise nearly N2 trillion in a new round of capital raising as the banking sector’s recapitalisation heads into its final year.
Wema Bank Plc, FCMB Group, FBN Holdco, are among others fresh capital hurdle is expected to cluster in the second quarter with offers from new issuers and previous issuers seeking to close their recapitalisation gaps.
THISDAY analysis of trading numbers showed that NGX Oil & Gas emerged as the worst performing index in the period, dropping by -5.55 per cent YtD, followed by NGX Insurance Index that closed in the period under review at -0.24 per cent YtD.
Further analysis showed that Wema Bank Plc, FCMB Group Plc and Stanbic IBTC Holdings Plc led other banking stocks in price appreciation in the first two months of 2025.
Wema Bank’s stock price appreciated by 30.8 per cent to close February 2025 at N11.90 per share from N9.1 per share the stock opened for trading in 2025 while FCMB Group’s stock appreciated by 12.8 per cent to close February 2025 at N10.6 per share from N9.40 per share it closed for trading in 2024.
Stanbic IBTC Holdings saw its stock price at N64.00 per share at the close of trading activities in Febuary 2025, an 11 per cent increase over N57.60 per share it opened for trading in thee year under review.
The three banks have released unaudited financial statement for full year ended December 31, 2024.
While Wema Bank declared N102.1 billion profit in 2024, about 134 per cent increase over N43.66billiion in 2023, FCMB Group posted N117.29 billion profit in 2024, representing an increase of 12.3 per cent from N104.43billion declared in 2023.
In addition, Stanbic IBTC Holdings closed 2024 with N303.8billion profit, a growth of 76 per cent from N172.91billion reported in 2023.
Speaking on the banking index performance, the Managing Director, Globalview Capital Limited, Mr. Aruna Kebira in a chat with THISDAY said, “The entry into the year 2025 is remarkably different from that of 2024. Last year started with the adjustment of the MPR upwards by 600 basis points.
“The growth in the relevant microeconomic variables started their ascent on that note. However, in 2025, the first news about any microeconomic variable was that of inflation growing by 20 basis points. At that, the market has discovered that the numbers are growing at a decreasing rate. This was followed by the rebating of inflation by the NBS.
“The resultant drop in the numbers from 34.80 to 24.40 was another testimony that 2025 is set out to be different from 2024. Moreso, the CBN retained all the rates in its first meeting of 2025. The market is believing the relevant rates will tank in 2025. Inflation figures spiked in 2024, using the year as the new base year, the number for inflation has no other option than to decline.”
He added that, “Dangote refinery is still in the business of reducing the pump price of Premium Motor Spirit. Now selling at N825 from N1, 100 from 2024, it is a matter of time, prices affected by the increase in petrol price will begin to temper. The period between January and March each year is earning and dividend declaration season.
“The market, an nay, investors also factored in pricing equities. The UFS and the AFS released so far into the market are far from being labelled lacklustre. The primary market auction of both the TBs and Bonds is interpreting the government body language of apathy to borrow. The stop rate for Bonds was 19per cent, while that for tmTBs was 18per cent.
“The participants in that space, if the rates continue to drop, will be faced with reinvestment risks, and the available investment destination then would be the stock market.”
Meanwhile, three banks are met the new minimum capital requirements for their licences. Seven banks successfully floated offers in 2024, with emerging results showing substantial oversubscription.
The Securities and Exchange Commission (SEC), had confirmed that banks raised some N1.7 trillion in new equity funds, in less than one-third of the current recapitalisation timeline.
The CBN in March 2024 released its circular on review of minimum capital requirement for commercial, merchant and non-interest banks. The apex bank increased the new minimum capital for commercial banks with international affiliations, otherwise known as mega banks, to N500 billion; commercial banks with national authorisation, N200 billion and commercial banks with regional license, N50 billion.
Others included merchant banks, N50 billion; non-interest banks with national license, N20 billion and non-interest banks with regional license will now have N10 billion minimum capital. The 24-month timeline for compliance ends on March 31, 2026.
Under the new minimum capital base, CBN uses a distinctive definition of the new minimum capital base for each category of banks as the addition of share capital and share premium, as against the previous use of shareholders’ funds.
While most banks have shareholders’ funds in excess of the new minimum capital base, their share premium and share capital significantly fall short of the new minimum definition. This implies that nearly all banks will need to beef up their capital base to meet the new definition of qualified capital.
Investment banking experts said with the strong start and continuing investors’ appetite for banking stocks, banks are on stronger footing to retain their licences.
Experts noted that banks have the advantages of enthusiastic existing shareholders and new investors, including foreign investors who have shown stronger appetite for Nigerian stocks in recent period.
The Managing Director, Globalview Capital Limited, further explained that the expectations in the capital market is that banks would largely be able to meet their capital requirements, citing the enthusiasm shown so far, as indicated by the 2024 offers.
According to him, banks have a lot of positive things going for them, which place them in better position to substantially outperform the 2004 recapitalisation scenario.
“In 2004, when the same exercise was foisted on the sector, we saw a lot of business combinations in the form of mergers and acquisitions. But after the general market meltdown, regulation has gone to a higher level. In 2025, the exact of what happened then is not expected. Quarterly and yearly earnings from the banking sector have been reflecting the true position of operations, which was opposite 21 years ago.
“To a very large extent, the market is not expecting any merger and acquisition as it believes that each bank would rise to the occasion and do the needful. Recapitalisation must not necessarily be from rights issues and public offers only. It could be from private placement and other strategic investments,” Kebira, a senior investment banker, said.
He noted that banks’ resilient earnings and ability to optimize shareholders’ value would support the sector’s recapitalisation exercise.
According to him, investors are looking beyond the current share pricing and macroeconomic situation into post-recapitalisation period, when banks would be bigger and in better position to deliver higher returns.
“The market is also looking towards a better outing for the banks after the recapitalisation exercise. It believes that more investable funds would be at their disposal and for what the sector is known, such funds would be judicious deployed. At that point, they will generate commensurate earnings to counter the increase in the share capital base and the dilution in the earnings per share (EPS).
“The market has also noted that the banking sector has been paying less than 50 per cent of their EPS as dividends and as such, while the exercise is concluded and the effect of the funds has not fully reflected in their operations, they would still be able to pay commendable dividend,” Kebira said.
Managing Director, APT Securities & Funds, Mallam Kasimu Kurfi, said the banks still have enough time to be able to raise funds and meet their recapitalisation target.
“The period to conclude recapitalisation is still over a year, so it is too early to assume merger. We are hoping other banks will come to the capital market and be able to meet up their capital requirements,” Kurfi, a senior investment banker and member of the board of SEC added.
