• Monday, May 27, 2024
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Recapitalisation: CIS wants banks to explore public offers, special placements

The exclusion of retained earnings from Nigerian bank’s recapitalisation components

While Nigerian banks are in a race to raise over N4 trillion in fresh capital to meet new regulatory requirements, the Chartered Institute of Stockbrokers (CIS) is urging them to look beyond rights issues as the sole method of fund raising.

According to CIS President, Oluwole Adeosun, public offers and special placements would allow for broader participation in the market and attract new investors, especially younger demographics.

Read also: The exclusion of retained earnings from Nigerian bank’s recapitalisation components

This was discussed at the Nigeria’s Association of Capital Market Academics symposium for Q2 2024 on Thursday, themed ” Banking Sector Recapitalisation; Implications for the Nigerian Capital Market.”

“There should be more than just rights issues, we believe some should go for public offer, special placement because the sum they are trying to raise is huge and also this will help to bring new shareholders into the market,” Adeosun said.

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

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: Bank stocks seen rally as recapitalisation, dividend drive buy interest

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.

He said public offers will allow the younger generation like millennials and gen z to participate in the stock market as many of them were young during the last recapitalization.

He also said that he doesn’t envisage a lot of Mergers and Acquisitions.

“We do not envisage for many Mergers and Acquisitions because capital requirements have been categorized into different classes and amounts unlike in the past,” Adeosun said.

He also said that this will help support the economy and build banks that can compete with their global counterparts.

“ It’s important to know that investors begin to position themselves since the announcement with tier one banks,” he said.

He mentioned that the banks will need N4.7 trillion for this process.

Adeosun said that banks should seek other ways than Rights Issue to meet the new requirements.

He stated that banks should adopt the technology to drive these issuances as the case of MTN Nigeria during its initial public offering.

Ken Okpara, President Chartered Institute of Bankers of Nigeria said that the recapitalization of the banks has come at the right time as it will lead to consolidation of mergers and acquisition among banks.

He said before the previous recapitalization 20 years ago banks operated with minimal capital base which led to so much insolvency.

In 2005, Charles Soludo, the then CBN governor, mandated banks to increase their minimum capital base to N 25 billion

This measure aimed to fortify the banking industry and stabilize the economy, addressing issues from the banking crises of the 1990s.

He said that the recapitalization exercise will make the banks operate at a bigger scale and enable them to support the economy.

Temi Sanni, group CEO Emerging Africa said that the recapitalization will drive a lot of foreign investors into Nigeria.

“ A better capitalsed bank will signify stronger economy which will be attractive to foreign investors,” she said, “ “ it will increase investors confidence in Nigeria’s financial stability, improve capacity and access to finance, create a competitive banking landscape and increase foreign direct investments inflows.”

Innocent Okwuosa, President Institute of Chartered Accountants of Nigeria

Okwuosa said that the exclusion of retained earnings from the recapitalization process might raise concerns with the international reporting standards.

Adeola Adenikinju, President Nigerian Economic Society also raised concerns on how the bank recapitalization process can lead to increase in money supply and inflation rate.

“The balance sheet of the banks will go up and money supply will increase, so the CBN needs to ensure that inflation is curtailed,” he said.

Adenikiju said that despite this, the exercise is a good one as it brought several positive results when it took place 20 years ago.

“ In 2005 foreign investors increased after the recapitalization process, foreign portfolio investment also went up, external reserves increased, lending rate reduced and real GDP grew,” he said.