Banking Stocks and Recapitalisation Drive

With primary and secondary markets data showing strong enthusiasm for banking shares, Kayode Tokede reports that banks are in prime position to ride the bulls to a successful recapitalisation exercise

Banking stocks opened to a demand market this year in a  trading pattern that highlights investors’ confidence in the ongoing recapitalisation of the banking sector. Banking stocks are leading the activity charts and are major contrarian stocks, playing in the uppermost segment of the bulls market.
The NGX Banking Index- which tracks the banking sector at the Nigerian stock market, closed last  week with  year-to-date (YTD) return of 7.04 per cent, the  highest so far by any sector. After a double-digit capital gain in 2024, banks are showing early signs of a bullish year. With selloffs in the oil and gas and industrial goods sectors dragging the market to the bears, financial services and consumer goods stocks have been moderating the market situation.

The All-Share Index (ASI) – the value-based common index that tracks all share prices at the Nigerian Exchange (NGX) closed weekend with a  positive YTD return of  0.65 per cent. The positive  performance was driven  mainly by gains  recorded by  the NGX Banking Index and  NGX  Consumer Goods  Index with  YTD of 7.04 per cent and  0.44 per cent  respectively. Besides banks, the NGX Insurance Index was positive with 1.8 per cent YTD increase.

After  banks raised some N1.7 trillion  after  six months of the commencement of the banking recapitalisation in 2024, the primary market opened last week with the launch of another banking offer. Stanbic IBTC Holdings is headlining the primary issuance market with its N148.7 billion rights issue.
Investment banking experts said there were all indications that banks are in better stead to meet their recapitalisation targets. Compared to the 2004 recapitalisation exercise, there could be less echoes of unwieldy business combinations in the ongoing recapitalisation with banks expected to raise funds to scale through the hurdle.

Securities and Exchange Commission (SEC), the apex capital market regulator, had confirmed that banks raised some N1.7 trillion in new equity funds, in less than one-third of the current recapitalisation timeline.
The Central Bank of Nigeria (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.
Already, three banks have met the new minimum capital requirements for their licences. Seven banks successfully floated offers in 2024, with emerging results showing substantial oversubscription.
Investment experts said they expected increasing foreign participation and upsurge in domestic demand to support recapitalisation of banks across all tiers.

According to analysts, well-managed mid-tier banks such as Polaris Bank should be able to achieve their recapitalisation targets with discerning high networth   investors seeking substantial holdings in banks with competitive advantages.

Polaris Bank was adjudged the best in digital banking, mobile banking, lending and supports to micro, small and medium enterprises (MSMEs) in a garland of honours that marked the bank’s transformative performance in 2024.

Foreign portfolio investors’ (FPIs) participation in the Nigerian stock market more than doubled in 2024, with the stock market riding the bulls of domestic and foreign investors to a historic milestone of all-time highest turnover.
Managing Director, Globalview Capital Limited, Mr. Aruna Kebira, said 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  said.
He noted that banks’ resilient earnings and ability to optimise 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 is  believed that more investable funds would be at their disposal and for what the sector is known, such funds would be judiciously 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 added.
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  said.
Managing Director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe, said banks would ride on the back of strong fundamentals and large investors’ base to a successful recapitalisation.

“I believe most of them will succeed not only because of their strong fundamentals but also because the investor base they will be targeting included both foreign and local investors. Again, the market has sufficiently proven that it has absorptive capacity, so if these issues are well-packaged and well-priced, then there shouldn’t be any problems,” Amolegbe, a former President of Chartered Institute of Stockbrokers (CIS), said.

He said there are various options for the banks to meet the recapitalisation deadline.
According to him, banks could also use the opportunity of the recapitalisation exercise to foster their strategic expansion plans as size would have significant influence in the post-recapitalisation period.
Banks are also cashing in on their goodwill from existing shareholders. Majority of offers so far have been rights issue, specifically directed at existing shareholders. They have all met with huge success. For instance, Access Holdings raised N351 billion in one swoop from existing shareholders to meet its recapitalisation at the first attempt.

Shareholders said they preferred banking stocks because of their liquidity, dividend history and fundamental performance overtime.
President, Association for the Advancement of Rights of Nigerian Shareholders (AARNS), Dr Faruk Umar said the decision to undertake rights issues underscored the confidence shareholders have in the banks.
He said banks were preferred stocks to investors because of their historical performance and returns.
He said shareholders were confident the recapitalisation would further strengthen banks and enhance returns to shareholders.

National Coordinator, Pragmatic Shareholders Association of Nigeria, Mrs. Bisi Bakare, said shareholders were generally positive about the ongoing banking recapitalisation.
“We are picking our rights and we are buying more, we believe that the banks are good stocks to keep. We are sure the recapitalisation exercise would be a huge success,” Bakare said.

Market analysts expected technology to leverage banks’ chances in raising funds. The NGX had in 2024 launched its NGX Invest, an innovative digital share offering platform for the distribution and subscription of public offerings and rights in the Nigerian capital market.
With few clicks, Nigerians and the global investing public can buy into share offerings at the Nigerian capital market under a fully automated share offering process. The paperless primary issuance market bridges geographical and other demographical barriers and opens up the underlying economic assets of the nation to all citizenry.

Banks that had launched offers in 2024 had credited NGX Invest with huge contribution to the success of their offers.
Chairman, Nigerian Exchange Group (NGX Group), Dr Umaru Kwairanga, said the launch of the NGX Invest had seen a double in the number of investors in the Nigerian capital market.

He assured the stakeholders  that the NGX would not only support banks in raising funds but also protect investors by ensuring that banks continue to adhere to the best corporate governance.
“After the offers are concluded, the Nigerian Exchange will ensure that the banks meet their disclosure requirements promptly and fully so that investors are kept abreast of how their monies are being used,” Kwairanga said.

Group Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, has however underlined the need for the CBN to deploy available infrastructure technology and Bank Verification Numbers (BVN) to tackle delay in the verification of banks’ offers and ensure speedy conclusion of the process.