Quoted banks need N3.31tr
Thirteen banks listed on Nigerian Exchange (NGX) will require N3.31 trillion new capital for them to be fully recapitalised based on the Central Bank of Nigeria (CBN)’s guidelines.
The banks include Access Bank Plc, Fidelity Bank Plc, FBN Holdings Plc, FCMB Group Plc, Guaranty Trust Holding Company Plc, Stanbic IBTC Bank Plc, UBA Plc, Zenith Bank Plc.
Analysts at Commercio Partners said an analysis of 13 listed banks across various tiers with a combined shareholders’ fund of N1.98 trillion indicate that they will need N3.31 trillion to meet Central Bank’s (CBN)’s new minimum capital requirement of N5.3 trillion for them.
The analysts said the ongoing round of consolidation, potentially mirrors the 2004 reform that reduced the number of banks from 89 to 25. This strategic move is expected to unleash a surge in foreign direct investment (FDI).
“In 2004 recapitalisation, from N5 billion to N25bilion-N50 billion of which included retained earnings, banks raised N406.4 billion from the capital market, of which N360 billion was verified and accepted by the Central Bank of Nigeria (CBN), which resulted in Foreign Direct Investment (FDI) inflows of US$652 million- and 162,000- pounds sterling,” they said in the company’s macroeconomic and markets reports released at the weekend.
Prior consolidation efforts in 2004, the new directive on the bank recapitalisation has led to a 1,900 per cent increase to N500 billion, given how the banking sector has grown, robustness and stability to hedge against unforeseen circumstances.
According to them, reflecting on past events, such as those in 2004, and considering the naira’s devaluation against the backdrop of economic growth (notably 9.25 per cent in 2004 versus 3.3 per cent in 2022) also given that capital importation has exhibited a downward trajectory since 2019, with foreign investment in the banking sector experiencing a significant decline of 60.2 per cent year-on-year in 2023, banks will have to diversify their funding sources, drawing from both local and foreign investments.
“We delved into an intricate analysis of the potential impacts of the upcoming recapitalisation compared to its predecessor in 2004, which drew a substantial over$750 million in Foreign Direct Investment (FDI). Our study sought to refine projections by factoring in a multitude of economic variables beyond the sheer size of the recapitalisation,” the company said.
They explained that among the pivotal factors we scrutinised were the proportion of foreign investors in banks, the prevailing economic growth rate at the time of recapitalisation, exchange rate volatility, and the overall performance of banks, among others.
“Our analysis revealed a nuanced picture, shedding light on the complexities that influence FDI dynamics. Interestingly, our findings suggest that the forthcoming recapitalisation may not wield the same magnetic pull on FDI as witnessed in 2004. This conclusion stems primarily from the observed deterioration across key factors influencing FDI inflows,” they said.
“Notably, both the exchange rate stability and the pace of economic growth have experienced declines, signaling a less favourable environment for attracting foreign investment. it’s imperative to acknowledge the nuanced limitations inherent in our analysis, despite its depth and breadth.”
One significant limitation lies in the inherent complexity of the banking landscape since the 2004 recapitalization,” the company analysts added.
They stated that since then, banks have undergone substantial structural transformations, experiencing significant growth in size and reach.
“This expansion has likely altered the dynamics of FDI attraction, potentially mitigating the direct comparison with the 2004 scenario. Other microeconomic indicators, such as the financial health of individual banks, their profitability, and the magnitude of retained earnings, could significantly impact investor perceptions”.
“In particular, the substantial accumulation of retained earnings within the banking sector since 2004 could signal financial robustness and resilience. This, coupled with increased capitalization, might serve as compelling signals to potential foreign investors, potentially offsetting some of the adverse effects of deteriorating macroeconomic conditions,” they said.
“The CBN has also shifted its focus from emphasizing capital quantity to prioritizing capital quality, aiming to reduce risks associated with foreign exchange (FX) volatility and inflation. This strategic shift in regulatory priorities is evident in data obtained from 13 banks across all tiers,” they stated.
- The Nation
