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Home Business Banking & Finance

Nigeria’s big banks take lead in hunt for new capital

1 year ago
in Banking & Finance, Economy, Features, highlights, Home, home-news, latest News, Markets
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Nigeria’s big banks take lead in hunt for new capital

Big banks have jumped right out of the blocks while the small lenders evaluate their options in a race to meet new capital rules set by the Central Bank of Nigeria (CBN).

Zenith, GTCO, FBNH, Access opt for rights issue

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

Zenith Bank is proposing an increase of 31.396 billion new shares, according to a filing with the Nigerian Exchange Limited (NGX) on Friday.

The bank did not specify the amount at which the new shares will be sold. At the current market price of N40 per share, the additonal shares are valued at N1.25 trillion.

The shares are however likely to be issued at a discount (cheaper than the market price).

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.

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 preffered 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.

“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.

“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.

Source: businessdayng
Via: norvanreports
Tags: CBNnew capitalNigeria’s big banksNigeria’s big banks take lead in hunt for new capital
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