• Tuesday, June 18, 2024
businessday logo


Nigeria’s big banks eye over N2trn in hunt for new capital

Nigerian banks set for aggressive dividend payouts amid new capital rules – EY

By Lolade Akinmurele and Eniola Olatunji

Big banks have jumped right out of the blocks in a race to meet new capital rules set by the Central Bank of Nigeria (CBN), with four of the tier-one lenders targeting over N2 trillion in local and foreign capital.

Zenith Bank Plc, the largest bank by market value, joined Access Bank, FBN Holdings and Guaranty Trust Holding Company (GTCO) last Friday in announcing plans to raise additional cash to achieve the CBN’s ten-fold increase in minimum capital requirements.

Read also: Banks’ e-payment revenue up 39% on CBN’s cashless policy

Zenith Bank is proposing a doubling of its issued share capital to 31.396 billion shares, according to a filing with the Nigerian Exchange Limited (NGX) on Friday.

At its current market price of N40 per share, the additional shares could rake in N630 billion.

The shares are however likely to be issued at a discount for a rights issue.

Zenith has a current capital base of N270.7 billion, according to the CBN’s calculation, which backs out retained earnings. This means the bank is in the market to raise N229.3 billion.

Access Holdings Plc, the parent company of Nigeria’s biggest bank by assets, was the first to announce capital raising plans, going ahead of the official disclosure by the CBN on March 28.

Access Holdings declared a total share capital of N2.1 trillion in its full-year 2023 results, over four times the new capital requirement, but that includes retained earnings, which the CBN said will not count in its calculation.

That leaves the bank, which plans to raise N365 billion in a rights issue, with a gap of N248 billion between its share capital and the new CBN requirement.

GTCO, the parent company of GTBank, is also planning to seek shareholder approval next month (May 9) to raise up to $750 million in capital.

At the closing rate of N1,142 per USD on Friday, according to FMDQ Securities Exchange, which calculates the exchange rates, GTCO is eyeing the equivalent of N856.5 billion.

GTBank has a current capital base of N138.2 billion when its retained earnings are chalked off. That leaves the bank needing N361.8 billion in new capital.

Read also: Bank directors urge CBN to scale recapitalisation with int’l exposure

FBN Holdings, on its part, will seek shareholder approval this month to raise up to N300 billion through a public share offering or private share sale in Nigeria or abroad.

The holding company, which owns First Bank, one of Nigeria’s top tier lenders, said it will ask shareholders for permission to raise the funds at a meeting set for April 30.

First Bank has a capital base of N251.3 billion, excluding retained earnings, leaving it with a N248.7 billion hole to plug.

The preferred option for capital raise by the big banks has been the rights issue, but analysts fear the move may be dilutive for shareholders.

A rights issue is when a company offers its existing shareholders the chance to buy additional shares for a reduced price.

The country’s banking industry faces a 24-month deadline to raise around N3 trillion to meet the minimum capital requirements announced by the central bank last month.

Small banks face M&A

For some small and medium-sized banks, the path to the new capital requirement is to either be acquired by a big bank or merge with another bank.

Tier-2 Wema bank said it has raised N40 billion via a rights issue and is waiting for regulatory approval.

The bank’s MD, Moruf Oseni, said that it would “Accelerate its capital management plans and ensure we embark on the journey to raise the required capital as quickly as possible.”

Sterling Bank Limited also recently raised N21 billion through the Sterling Investment Management SPV Plc under its N30bn Debt Issuance Programme.

“Some small and medium-sized banks may struggle to raise the necessary capital, and could be acquired by larger banks,” analysts at global ratings agency Fitch said in a note to clients.

“Certain domestic systemically important banks have particularly high capital ratios but are significantly below the new paid-in capital requirements, and may prefer to consider acquisitions over seeking fresh capital injections,” Fitch said.

Another ratings agency, Moody’s Investors Service, had also predicted “significant consilidation” within the sector, “particularly where it is not feasible for banks to raise the required capital.”

Banks have till the end of this month to submit their implementation plans to the CBN.

Read also: Dollar supply seen rising on CBN’s new directive

“We expect that the new regulations will drive significant consolidation within the sector, particularly where it is not feasible for banks to raise the required capital,” Moody’s Investors Service said in a note to clients last week.

“The exclusion of retained earnings from qualifying capital may complicate recapitalisation plans.”

The CBN announced on March 28 that commercial banks, merchant banks and non-interest banks must meet significantly higher paid-in capital requirements (share capital plus share premium) by the end of the first quarter of 2026.

Higher requirements have been widely anticipated for several years, particularly since the naira devaluation, but the announced increases are significantly larger than expected.

Commercial banks with international and national licence authorisation, which account for most of the banking sector, face 10 times and 8 times their existing requirements, respectively.