Some Nigerian banks are planning to raise fresh capital from the stock market to strengthen their balance sheets and support their growth plans. The banks are expected to raise not less than N400 billion from existing shareholders and new investors in the coming months.
FBN Holdings Leads the Pack
FBN Holdings Plc, the parent company of First Bank of Nigeria (FBN) and its former subsidiaries, is leading the pack with a proposal to raise N139 billion through a rights issue of 8.974 billion ordinary shares of 50 kobo each at an offer price of N15.50 per share. The rights issue will be pre-allotted to shareholders on the register of the company as at October 10, 2023, on the basis of one new ordinary share for every four ordinary shares held.
FBN Holdings is Nigeria’s oldest financial services group and one of the largest by assets. The bank has been undergoing a restructuring process to improve its governance, risk management and operational efficiency. The bank also aims to leverage its digital platforms and network to grow its customer base and market share.
Other Banks Follow Suit
Three other banks – Wema Bank Plc, Fidelity Bank Plc and Jaiz Bank Plc – are also seeking approval from the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) to raise more than N135 billion in separate offer proposals.
Wema Bank, Nigeria’s longest surviving indigenous bank, plans to raise N40 billion through a rights issue of 20 billion ordinary shares of 50 kobo each at an offer price of N2 per share. The rights issue will be pre-allotted to shareholders on the register of the company as at October 10, 2023, on the basis of four new ordinary shares for every five ordinary shares held.
Fidelity Bank, one of the leading commercial banks in Nigeria, intends to raise N50 billion through a rights issue of 10 billion ordinary shares of 50 kobo each at an offer price of N5 per share. The rights issue will be pre-allotted to shareholders on the register of the company as at October 10, 2023, on the basis of one new ordinary share for every three ordinary shares held.
Jaiz Bank, Nigeria’s premier and largest non-interest bank, is undertaking a rights issue of about 5.41 billion ordinary shares of 50 kobo each at an offer price of N1 per share, representing an initial offer size of N5.4 billion. The rights issue will be pre-allotted to shareholders on the register of the company as at October 10, 2023, on the basis of one new ordinary share for every two ordinary shares held.
Why Are Banks Raising Capital?
The banks are raising capital for various reasons, including:
- To meet the regulatory requirements for capital adequacy ratio (CAR), which is the ratio of a bank’s capital to its risk-weighted assets. The Central Bank of Nigeria (CBN) requires banks to maintain a minimum CAR of 10% for national banks, 15% for international banks and 16% for systemically important banks.
- To cushion the impact of the COVID-19 pandemic, which has affected the profitability and asset quality of many banks. The pandemic has also increased the demand for credit from various sectors of the economy, especially small and medium enterprises (SMEs), which require more capital support from banks.
- To take advantage of the favourable capital market conditions, which have seen a recovery in investor confidence and stock prices in recent months. The NSE All-Share Index (ASI), which measures the performance of all listed equities in Nigeria, has gained about 18% year-to-date as at October 10, 2023.
- To pursue their strategic growth plans, which involve expanding their branch network, enhancing their digital capabilities, diversifying their product offerings and increasing their market share in key segments such as retail banking, corporate banking and non-interest banking.
What Are the Implications for Investors?
The capital raising exercise by the banks is expected to have positive implications for investors, such as:
- Improving the financial strength and resilience of the banks, which will enable them to withstand any shocks or stress in the operating environment.
- Enhancing the earnings potential and dividend payout capacity of the banks, which will boost their return on equity (ROE) and shareholder value.
- Increasing the liquidity and free float of the banks’ shares in the stock market, which will improve their market capitalisation and attractiveness to institutional investors.
- Providing an opportunity for existing shareholders to increase their stake in the banks at a discounted price and benefit from future capital appreciation.
