Bank stocks seen rally as recapitalisation, dividend drive buy interest

Despite negative take-off to this four-day trading week, investors interest in Nigeria’s banking stocks drove the counters prices higher on Tuesday, the first trading day after the Central Bank of Nigeria (CBN) announced decision to raise the minimum capital requirements for banks in Nigeria.

The market decreased slightly by 0.04percent as the domestic bourse opened Tuesday for another four-day trading this week after the Public Holidays to commemorate Easter celebration.

Amid the record negative, banking stocks like Access Holdings, GTCO, Fidelity Bank, Unity Bank and Zenith Bank rallied on the Bourse. These stocks and other counters were on buyers list despite last minute profit taking by investors that routed the market southwards. As well, GTCO, Access Holdings, UBA, Zenith Bank and Fidelity Bank were actively traded stocks on Tuesday.

“The expectation of strong financial releases from banks, coupled with the CBN’s revision of banks’ minimum capital requirements, is likely to prompt further buying interest in banking stocks.

“This interest is particularly heightened as some banks have already expressed intentions to raise capital,” said Lagos-based Meristem research analysts in their April 2 note.

Access Holdings, one of Nigeria’s largest financial institutions plans to raise a staggering N365 billion through a rights issue. Access Holdings is also seeking a combined capital raise of up to $1.5 billion via equity, quasi-equity, and debt issuances.

Access Holdings Plc in its full year 2023 results released recently declared a final dividend of N1.80 kobo, bringing total dividend for 2023 to N2.10 kobo (factoring in N0.30 kobo interim dividend). The qualification and payment date were set for April 10 and April 19 respectively. Guaranty Trust Holding Company Plc (GTCO Plc) will soon be in the market to raise N450 billion to N525 billion through a public offer.

At the close of trading on Tuesday, the Nigerian Exchange Limited (NGX) All Share Index (ASI) and equities market capitalisation increased from March 28 lows of 104,562.06 points and N59.120trillion respectively to 104,518.14 points and N59.095trillion. The market’s positive return year-to-date (YtD) decreased slightly to 39.78percent.

The Central Bank of Nigeria has recently asked commercial banks with international authorisation to maintain a minimum capital of N500 billion, while national and regional commercial banks are mandated to hold N200 billion and N50 billion capital bases, respectively.

Also, merchant banks are to have minimum capital of N50 billion, and national and regional non-interest banks are to have N20 billion and N10 billion, respectively. A timeline of 24 months has been stipulated for banks to adhere to the new requirements, commencing on April 1, 2024, and concluding on March 31, 2026.

Fidelity Bank had ahead of the CBN directive applied for approval and listing of the Rights Issue of 3.2 billion ordinary shares of 50 kobo each at N10 per share on the Nigerian Exchange Limited.

The Rights Issue if approved will see the lender raise about N32billion from existing shareholders. It was revealed that the Rights Issue will be “On the basis of one new ordinary share for every 10 existing ordinary shares held as at the close of business on Friday January 5, 2024.

The qualification date for the Rights Issue was January 5, 2024. Fidelity Bank had in 2023 said that it would raise fresh capital through a combination of public offer and Rights Issue involving the issuance of 13,200 billion ordinary shares.

While Meristem analysts expect positive sentiment to dominate the local bourse this week, their expectation is anchored on several factors, which in addition to banks financials and CBN’s minimum capital requirement include the possibility of bargain hunting from investors after certain stocks have experienced declines in recent weeks.

“We do not anticipate negative triggers that could shift market direction towards the negative, barring any unforeseen occurrences. Ultimately, we expect the NGXASI to close in the green zone this week,” they said.

“This week, we anticipate a mixed performance in the equities market this week as investors digest new data from the MPC. Attention will likely shift to the fixed income market, swaying short-term investor decisions.

“However, we anticipate renewed buy-interest in the equities market fuelled by forthcoming corporate actions and earnings results, attracting investors positioning for dividend payments. Our recommendation to investors is to consider investing in high-quality stocks supported by strong fundamentals,” according to Futureview research analysts in their recent note to investors.

“We expect bargain hunting activities to continue, with the recent release of a flurry of full year 2023 audited financial statements, and corporate actions. We expect a sustained southward trend of short-term rates in the fixed income market to motivate further bullish sentiments toward equity investments at different intervals,” according to United Capital research analysts in their recent investment views.