Investors abandons banking stocks amid recapitalization exercise

• About N1.62 trillion has dipped from the market capitalisation of banking stocks listed on the Nigerian Exchange
• This occurred amid reforms in the banking sector aimed at strengthening the sector by increasing capital
• The Central Bank of Nigeria gave Deposit Money Banks instructions to recapitalise by the end of March

Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.

The market capitalisation of banking equities listed on the Nigerian Exchange has decreased by around N1.62 trillion after the Central Bank of Nigeria ordered the nation's banks to recapitalise.

The Central Bank of Nigeria gave Deposit Money Banks instructions to recapitalise. Photo Credit: Ivan Pantic
Source: Getty Images

Deposit Money Banks were instructed in March to recapitalise by the Central Bank of Nigeria.

According to the CBN circular, this round of recapitalisation will only recognise the share capital and share premium items on the shareholder fund component of the balance sheet.

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Investor decisions were influenced by regulations issued by the federal government and the Apex Bank in the days and weeks following the CBN recapitalisation instruction, as the banks rushed to the market to raise the necessary money.

The most recent is a 70% windfall tax, which will be applied retroactively to bank gains realised in the fiscal year 2023 and will cover all foreign exchange earnings earned from the new FX policy's introduction until the end of 2025.

Experts speaks on reforms

During a recent press conference in Lagos, Tayo Aduloju, the CEO of the National Economic Summit Group, voiced concerns regarding the government's policies' lack of coherence, particularly with regard to the windfall tax.

He stated,

“The problem with the conveyor belt of reforms is that when it is just coming out piece by piece, it’s hard to coordinate and therefore the outcome will have some unintended consequences.“So at a time you are telling investors to bring funds into Nigeria, some reforms are creating a more difficult environment for those same investors. You have a tax holiday on food, on drugs, that will affect your import bill, but you also increase your demand for forex.”

Due to the sensitive nature of the situation, a stockbroker who talked with The PUNCH on the condition of anonymity stated that there was a lot of interest when the CBN made the announcement but emphasised that it had since slowed down.

“A lot of investors were looking forward to the offers but since then, a lot has happened – the pressure from CBN and the Federal Government. We have had restrictions on the use of retained earnings as a capital-raising instrument, we have seen recently the windfall tax and the dormant account. All of these increased regulatory actions are disincentives to investors.“If you look at the pricing of the offers, my personal view was that the pricing would encourage the investors to pick up their rights but what we are seeing is that investors would rather buy stocks in the secondary market than take up their rights. So the pricing is a big deal,” the stockbroker stated.

The stockbroker continued by saying that some participants were even discussing a review of the market regulations, which would result in the capital market's shares of banking companies being unavailable for trade while their offers were active.

Former Chartered Institute of Stockbrokers President Tunde Amolegbe expressed concern over the pricing of the offers but acknowledged that it was still too early to determine investors' appetites.

Amolegbe, the managing director of Arthur Steven Asset Management Limited, confirmed that younger investors will probably participate more after the NGX E-offering platform is launched.

Banks set targets for workers

Legit.ng reported that ahead of the new capital base requirements by the Central Bank of Nigeria (CBN), members of staff of commercial banks have been enlisted to raise various capital bases in line with the new requirements.

The bank workers were asked to help raise funds by encouraging customers to open new accounts, reactivate old ones, and make more extensive deposits.

The method is used to raise funds internally and cuts across all strata of staff, including IT and personnel.

Source: Legit.ng