In 2023, Nigeria faced a severe currency crisis following the naira redesign, leading to widespread cash access issues. The fallout was significant: businesses collapsed, lives were lost, and many fell victim to cyber fraud.
Enhancing Financial Innovation & Access (EFInA) revealed in its latest report that while the naira redesign policy aimed to boost digital finance, it had adverse effects on businesses and households. Approximately 70 percent of entrepreneurs experienced setbacks, including revenue losses and market disruptions.
The fallout from this crisis has left a lingering impact, with many Nigerians questioning the reliability of their banks. It led to a marked preference for cash over bank deposits, highlighting the need for banks to demonstrate their ability to provide secure and accessible financial services.
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As Nigerian banks embark on a recapitalisation process before the 2026 deadline, they face the formidable task of rebuilding this lost trust. The challenge for these banks is not just to meet the financial requirements but to restore customer confidence and demonstrate their capability to provide secure and accessible financial services.
Recapitalisation: Who needs to raise what?
Bank recapitalisation, as explained by CORE, is the process of increasing a bank’s long-term capital to meet the minimum requirements set by financial authorities and protect shareholders’ funds.
BusinessDay Intelligence (BDI) reported that the Central Bank of Nigeria (CBN) mandated commercial banks with international licence to raise N500 billion.
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Zenith Bank: Zenith Bank leads the list with a capital base of N270.75 billion, as reported in its Q3 earnings. To reach the N500 billion benchmark, Zenith Bank needs to raise an additional N229.25 billion.
Access Bank: Based on last year’s audited financial statement, Access Bank has a capital base of N251.81 billion. Therefore, it needs to raise N248.19 billion to meet the minimum capital requirements for international licence holders.
First Bank of Nigeria (FBN): According to its FY audited financial statement, FBN has a capital base of N251.31 billion. To reach the $500 billion target, it needs to raise $248.69 billion.
Fidelity Bank: Fidelity Bank’s unaudited Q4 financial statement shows a capital base of N129.71 billion. It requires an additional N370.29 billion to meet the N500 billion requirement.
“Approximately 70 percent of entrepreneurs experienced setbacks, including revenue losses and market disruptions.”
Guarantee Trust Bank (GTB): GTB, based on its Q3 financial statements, has a capital base of N138.19 billion. It needs to raise N361.81 billion to meet the N500 billion requirement.
United Bank for Africa (UBA): UBA’s Q3 financial result indicates a capital base of N115.82 billion, falling short by N384.18 billion from the required N500 billion for international licence holders.
First City Monument Bank (FCMB): According to its unaudited FY financial results for 2023, FCMB has a capital base of N125.29 billion. It needs to raise N374.71 billion to meet the N500 billion requirement.
Rising financial inclusion signals a positive shift for recapitalisation
Nigeria has made notable strides in financial inclusion, according to the latest EFInA Access to Finance (A2F) Survey. The survey reveals that formal financial inclusion in the country has surged from 56 percent in 2020 to 64 percent in 2023. This marks a substantial increase and underscores the nation’s progress towards its goal under the Nigeria Financial Inclusion Strategy (NFIS 3.0) to reduce financial exclusion to 25 percent by 2024.
The 2023 survey results indicate that 26 percent of Nigerians are financially excluded, a marked improvement from 32 percent in 2020. This reduction represents a decline of about 9 million adults who were previously excluded from formal financial systems. Nearly 3 in 5 adult Nigerians now have access to formal financial services, up from 68 percent in 2020. This progress is attributed to both a modest increase in the banked population and significant growth in non-bank formal financial adoption.
The data also highlights a significant shift in financial management practices. The use of a combination of bank, non-bank, and informal mechanisms to manage financial needs has doubled to 20 percent in 2023, compared to just 10 percent in 2020. Financial Service Agents have expanded their reach to 11 million adults who do not use traditional banks or mobile money services.
Despite these advancements, challenges remain. The North-East and North-West regions of Nigeria still report financial exclusion levels that exceed the national average. While there have been considerable improvements in these areas, further efforts are needed to address the disparities and ensure that all states benefit from the progress.
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Recapitalisation confidence check: The NGX-Banking index performance
For the week ending August 2, 2024, the NGX-Banking Index fell by 0.48 percent, closing at 815.29. In the Tier 1 banking sector, GTCO and Ecobank (ETI) have delivered strong year-to-date (YTD) performances, with price increases of 11.11 percent and 2.87 percent, respectively.
According to a report by Proshare, UBA’s stock dropped significantly by 21.83 percent YTD. Meanwhile, Tier 2 banks like Wema and FCMB have shown positive share price momentum, in contrast to Sterling Bank and Stanbic IBTC Holdings, which experienced declines of 37.58 percent and 23.91 percent in their share prices.
Furthermore, Zenith Bank announced a N290 billion capital raise to address its funding gap, exceeding the Central Bank of Nigeria’s (CBN) minimum recapitalisation requirement of N230 billion. This move aims to fortify the bank’s financial standing.
In the previous week (ended July 26, 2024), the NGX-Banking Index had dropped by 2.94 percent to 819.20, with GTCO and Ecobank also showing positive YTD gains. Wema and FCMB continued to perform well, while Sterling and Stanbic faced significant share price reductions. The CBN has set a deadline of March 31, 2026, for banks to meet the new capital requirements, with options for mergers, acquisitions, or downgrading licences.
Nigerian banks report robust financial performance in Q1 2024
Nigerian banks have delivered robust financial performances in the first quarter of 2024. Zenith Bank leads the way, declaring a record dividend of ₦4.00 per share, amounting to ₦125.59 billion.
This follows a 125 percent surge in gross earnings, from $945.6 billion in 2022 to $2.132 trillion in 2023. Zenith Bank’s profit before tax (PBT) skyrocketed by 180 percent to $796 billion, and profit after tax (PAT) grew 202 percent to $676.9 billion.
Access Holdings also reported impressive gains, with a 129.3 percent rise in gross earnings to $974.24 billion and a 148 percent increase in PBT to $202.74 billion. The group’s assets surged by 22 percent to $32.6 trillion, and it plans a $365 billion rights issue in 2024 to bolster regulatory capital.
Other notable performances include Guarantee Trust Holding Company (GTCO), which saw its gross earnings jump 170.6% to $281.65 billion and PBT soar 587.5% to $509.3 billion.
First City Monument Bank (FCMB) achieved a 186 percent increase in PBT to ₦104.4 billion and proposed a dividend of 50 kobo per share. The United Bank for Africa (UBA) reported a 110 percent rise in gross earnings to ₦570.2 billion and a 155 percent increase in PBT to ₦156.34 billion. Fidelity Bank’s PBT grew 120.1 percent to $39.5 billion, while First Bank of Nigeria (FBN) celebrated its 130th anniversary with a 325 percent increase in PBT to $338.5 billion.
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Financial resilience despite the 2023 cash crunch
Between 2019 and 2023, Nigerian commercial banks with international licences have shown notable improvements in investor confidence, despite the 2023 cash crunch. Zenith Bank, for example, saw its profit after tax jump from N208.8 billion in 2019 to N676.9 billion in 2023, with dividends per share rising from N2.8 to N4. This significant increase underscores the bank’s success in reassuring investors amid economic difficulties.
Access Bank also demonstrated resilience, with profits climbing from N94.01 billion to N649 billion and dividend per share growing from N0.65 to N2.62. Other banks, such as Guaranteed Trust Bank (GTB) and United Bank for Africa (UBA), also made impressive gains. GTB’s profit surged from N196.85 billion in 2019 to N539.65 billion in 2023, while UBA’s profit increased from N89.1 billion to N607.69 billion.
These improvements reflect the banks’ effective strategies to regain investor confidence.
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