In a move aimed at bolstering economic growth, the Presidency has voiced support for the Central Bank of Nigeria’s (CBN) initiative to consolidate the banking sector. This endorsement comes just days after the CBN announced its intention to request banks to raise new capital.
Speaking on behalf of President Bola Tinubu at The Guardian Newspapers’ 40th Anniversary Celebration in Lagos, the President’s Special Adviser on Information and Strategy, Bayo Onanuga, emphasized the need to reassess the capital adequacy of Nigerian banks. He stated that addressing banks’ capital adequacy is crucial for achieving the projected $1tn economy in the next eight years.
At the recent 58th annual Bankers’ Dinner, CBN Governor Olayemi Cardoso stressed the importance of evaluating the adequacy of the banking industry to serve the envisioned larger economy. Cardoso revealed that stress tests indicated the strength of Nigerian banks under mild-to-moderate scenarios but suggested the need for further strengthening. As a response, the CBN plans to direct banks to increase their capital.
The announcement of the proposed recapitalization has already triggered significant investor activity in the stock market. Notably, investors injected over N110bn into the stocks of top-tier banks listed on the Nigerian Exchange Limited in just two days. Market analysis revealed that six banks experienced an increase in market capitalization, with FBN Holdings leading the gains at an 11% appreciation.
Investors are positioning themselves amid speculation of possible acquisitions and consolidation within the banking sector. While some banks gained value, others experienced losses, reflecting the dynamic response to the proposed policy changes.
In response to the CBN’s direction, a CEO of a Tier-1 bank expressed readiness to raise fresh capital, aligning with the central bank’s objectives. Several banks have already initiated plans to raise additional capital through rights issues, public offers, and other means.
However, there are differing opinions within the capital market regarding its ability to fully support the proposed recapitalization. While some believe the market can handle the capital raise, others express concerns about its capacity, particularly in the absence of significant foreign investor participation.
In anticipation of potential changes, minority shareholders are closely scrutinizing banks, considering factors such as dividend history, capital appreciation, and management track records. Some shareholders insist on due diligence, emphasizing the need for responsible financial practices and transparency.
As the financial landscape undergoes potential transformations, the market remains dynamic, with stakeholders closely monitoring developments and preparing for a new phase in Nigeria’s banking sector.
