Retail investors may shun bank stocks after N1.6tn loss

Banking stocks listed on the Nigerian Exchange have lost about N1.62tn in their market capitalisation since the Central Bank of Nigeria directed the banks in the country to recapitalise.

In late March, the Central Bank of Nigeria directed Deposit Money Banks to recapitalise. In the CBN recapitalisation circular, commercial banks with international authorisation are to increase their capital base to N500bn and national banks to N200bn while those with regional authorisation are expected to achieve a N50bn capital floor.

Similarly, non-interest banks with national and regional authorisations are to increase their capital to N20bn and N10bn, respectively.

According to the CBN circular, only the share capital and share premium items on the shareholder fund portion of the balance sheet will be recognised in this particular round of recapitalisation.

The apex bank circular said the banks are required to meet the minimum capital requirement within 24 months commencing from April 1, 2024, and terminating on March 31, 2026, using the options of raising additional capital, mergers and acquisitions and licence change.

The PUNCH reported that to meet the new capital base, the entire banking sector will need to raise about N3.972tn.

Since the announcement, several banks have thrown their hats into the ring by asking investors to get a slice of their shares. They include Fidelity Bank, Access Holdings, Guaranty Trust Holding Company, Zenith Bank, Wema Bank and FCMB Group.

During the same period, 13 banking stocks listed on the Nigerian Exchange Limited have shed about N1.62tn from their combined market capitalisation.

The banking stocks include FBN Holdings, Access Holdings, Guaranty Trust Holding Company, United Bank for Africa, Zenith Bank, Wema Bank, Fidelity Bank, FCMB Group, Stanbic IBTC Holdings, Sterling Financial Holding Company, Ecobank Transnational Incorporated, Unity Bank and non-interest bank, Jaiz Bank.

As of March 28, 2024, when the regulator announced the fresh recapitalisation directive, the combined market capitalisation of the banking stocks was N8.08tn with GTCO and Zenith Bank taking the lead position.

The duo maintained their pole positions at the close of trading on Friday, August 2, but the banking stocks’ market cap had dipped to N6.46tn indicating about 20.04 per cent dip or N1.62tn loss to investors in the sector.

According to the weekly market report from the NGX on Friday, the year-to-date returns of the Banking Index stood at 9.13 per cent, worsening from -8.69 per cent a week earlier and far from the local bourse’s All-Share Index’s Year-to-Date at 30.72 per cent.

Findings by The PUNCH indicated that regulatory pressure and the pricing of rights issues and public offers are impacting banks’ efforts to raise additional capital on the market.

This was gathered from different chats with players in the capital market on investors’ appetites.

Pricing effects

A recent analysis by Comercio Partners on the impact of pricing on the offerings revealed that Fidelity Bank and Wema Bank are trading at a premium, with Wema having the highest premium at 37.34 per cent, providing an incentive to exercise the rights.

However, Access Holdings, GTCO and Zenith are trading at a discount, with Access having the largest discount at -6.33 per cent, thus creating scepticism about their rights issues.

“The primary incentive for exercising rights is value proposition; the opportunity to purchase additional shares at a price lower than the current market value. Otherwise, should one be exercising for the love of the brand? Another reason could be staying in the game (maintaining ownership stake),” the analysis partly read.

Regulatory decisions

In the days and weeks following the CBN recapitalisation directive and as the banks moved to the market to raise the required funds, there were regulations from the apex bank and the Federal Government that weighed on investors’ decisions.

The latest is a 70 per cent windfall tax which will be applied retrospectively to banks’ profits realised in the 2023 financial year and will extend to all foreign exchange profits accrued from the implementation of the new forex policy until the end of 2025.

Before then, the CBN had excluded retained earnings from the recognised capital base of banks, a move which Meristem Securities in its Banking Sector Update suggests may be a deliberate attempt to capture the revaluation gains via the windfall tax.

Recently, the CBN also directed banks to move funds in dormant accounts to its custody for safekeeping.

Experts react

The Chief Executive Officer of the National Economic Summit Group, Dr Tayo Aduloju, during a recent press parley in Lagos, expressed worry about the lack of cohesion in the policies of the government especially as it pertains to the windfall tax.

“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,” he stated.

A stockbroker, who spoke to The PUNCH on the condition of anonymity, due to the nature of the matter, said there was significant interest when the CBN made the announcement but stressed that the interest 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 added that some players were even talking about a review of the market rules that would see the suspension of trading in shares on the banking stocks on the capital market while their offers were on.

On his part, a former President of the Chartered Institute of Stockbrokers, Tunde Amolegbe, said it was still too early to get a clear picture of investors’ appetite, however, the pricing of the offers was a concern.

“The perception we are getting is that most retail investors are willing to pick up their Rights Issue though the pricing of some of these offers could be of concern to some class of investors. Those banks issuing rights to existing shareholders such as GTCO and Zenith Bank only need to focus on convincing existing shareholders to pick up their rights and they will achieve their objectives.

“Banks such as Access Holdings, Fidelity Bank and the likes that are either issuing only public offer or a hybrid will need to do more work by telling their positive stories to persuade the investing public to embrace their offers,” he stated.

Amolegbe, who is the Managing Director of Arthur Steven Asset Management Limited, affirmed that the launch of the NGX E-offering platform would likely drive participation from younger investors.