Following the banking sector recapitalisation exercise announced by the Central Bank of Nigeria in March 2024, the Nigerian Exchange Limited banking sector has witnessed sentiment trading. Kayode Tokede examines the sector's current status and how investors are taking caution in taking positions amid impressive corporate earnings and dividend payouts
Since the Central Bank of Nigeria (CBN) announced the banking sector recapitalisation this year, investors have cautiously traded the banking stocks on the Exchange.
In the new dispensation unfolded by the CBN Governor, Olayemi Cardoso, commercial banks are facing minimum capital thresholds of N500 billion for international authorisation and N200 billion for national authorisation.
In contrast, those with regional authorisation are expected to achieve a N50 billion capital floor. Similarly, non-interest banks with national and regional authorisations would need to increase their capital to N20 billion and N10 billion, respectively.
To enable the banks to meet the minimum capital requirements, within 24 months commencing from April 1, 2024, the CBN urged banks to consider injecting fresh equity capital through private placements, rights issues, and/or offers for subscription; Mergers and Acquisitions (M&As); and/or upgrades or downgrade of license authorisation.
Impacts on NGX Banking Stocks
On the backdrop of the announcement, the NGX Banking Index (an investable benchmark to capture the performance of the banking sector, this index comprises the most capitalised and liquid companies in banking) had declined by 7.47 per cent to emerge as the worst-performing indicator on the local bourse in first half year of 2024 (H1 2024).
Analysts attributed the poor performance of the banking stocks, which usually leads to other indices, to investors' cautious trading, stressing that the speculative merger and acquisition or event of takeover may weaken their investment.
As at the end of July 2024 trading activities, the NGX ASI appreciated by 30.76 per cent YtD to close at 97,774.22 basis points from 74,773.77 basis points the stock market opened 2024, while the NGX Banking Index dipped further by 10.67 per cent YtD to close at 801.43 basis points from 897.2 basis points it closed for trading 2023.
The trend continued in August 2024 when the NGX Banking Index dropped by 4.46 per cent YtD to close at 857.21 basis points as the average return on investment gained 29.16 per cent YtD to close at 96,579.54 basis points.
The Chief Operating Officer of InvestData Consulting Limited, Mr. Ambrose Omordion, attributed the dwindling banking stocks to panic profit-taking by investors who don't understand the impact of CBN's banking sector recapitalisation.
He said: "Banking sector recapitalisation in Nigeria provides a lot of opportunities because these banks are healthy and have a lot of resources. If not because the CBN removed retained earnings; no banks would need the public to raise fresh capital."
On the sector's recapitalisation, investment banker and stockbroker, Mr. Tajudeen Olayinka in a chat with THISDAY stated that banks accessing the capital market to raise capital is a welcome development, stressing that the stock market is ready to support banks in their quest to meet CBN requirements.
"The truth is that most banks may not be able to raise as much as they require from the stock market at this time because of high interest rates, among other factors. Ordinarily, banks could have raised as much as they require at a lower cost of equity and as it is now, they may have to consider a higher cost of equity."
However, the Banking Index in September 2024 has witnessed a revival as impressive corporate
earnings by some Tier1- and Tier-2 banks have renewed investors' interest, leading to the Index to migrate from loss to 0.32 per cent in its YtD performance as of September 13, 2024.
Banks' Performances
Also, excitement over some banks completion and ongoing public offer/ rights issues played a critical role in the banking index performance on the Exchange.
For example, with the completion of the N400.5 billion public offer by Guaranty Trust Holding Company (GTCO) Plc, its stock price has gained momentum, reaching N46.00 per share as of September 2024.
The stock price as of September 13, 2024, gained 5.5 per cent YtD as it opened 2024 trading at N40.50 per share. GTCO's stock had reached N53.95 per share at its 52-week high and N32.35 per share 52-week low on NGX.
GTCO recently completed its capital raising exercise worth N400.5 billion in a public offer for a subscription of 9,000,000,000 ordinary shares of 50 kobo each at N44.50 per share.
The lender in its audited H1 2024 result and accounts declared N1.00 per share interim dividend, translating into N29.43 billion.
Its profit after tax hit N905.6 billion in H1 2024, about a 223 per cent increase from N280.48 billion reported in H1 2023 and a profit before tax of N1 trillion.
Zenith Bank's stock price reached a peak and low of N47.35 and N29.7 per share respectively
Zenith Bank's Rights Issue and Public Offer are part of its strategic plan to raise an additional N290 billion in capital, which will be used to strengthen its operations, enhance its market presence, and improve its balance sheet. The lender had extended the deadline for its ongoing Rights Issue and Public Offer till September 23, 2024.
Access Holdings' stock price stood at N19.25 per share as of September 13, 2024, a decline of 3.90 per cent from N23.15 per share it closed in 2023, which analysts blamed on the delay in filing H1 2024 results and accounts and the announcement of the N351 billion Rights issue offer.
The pan-African financial institution had completed a N351 billion rights issue programme as the group issued 17,772,612,811 ordinary shares at the rate of two new shares for every share held by existing shareholders. The offer price for the rights issue is N19. 75 per share.
As Fidelity Bank completed its hybrid N127.01 billion public offer and rights issue, its stock price closed September 13, 20244 at N10.95 per share, gaining 0.1per cent YtD from N10.85 per share the stock price closed for trading in 2023.
As of the time of filing this report, Fidelity Bank has not announced its H1 2024 result and accounts and outcome of the capital raising exercise, capital market analysts have predicted oversubscription. Fidelity Bank saw its stock price at N10.95 per share, about a 0.1 per cent increase when compared to N10.85 which closed for trading in 2023.
On its part, FCMB Group's stock price closed at N7.60 on NGX, about a 0.2 per cent increase from N7.40 per share it closed in 2023.
Recently, FCMB Group ended a N101 billion offer September 4, 2024, and the offer, according to capital market stakeholders has recorded a huge turnout following the huge discount.
The Group had issued 15,197,282,219 ordinary shares of 50 kobo each at N7.30 per ordinary share of N0.50 kobo each. As at the close of trading in August 2024, FCMB Group's stock price rose to N7.70 per share on the floor of the NGX as against the offer price of N7.30 per share.
In its 52-week high and low, it reached N12.45 and N5.76 per share, respectively as it has proven to be one of the strong Tier-2 banks in stock price appreciation on the Exchange.
Investors Await FBN Holdings, Others
FBN Holdings Plc, Sterling Financial Group Plc and Wema Bank Plc are the only three banks that have announced plans to raise capital on Exchange. Meanwhile, mixed investors sentiment continued to rock other banking stocks in the period under review.
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The stock price of FBN Holdings closed September 13, 2024, at N29 per share, about 5.45 per cent increase from N23.55 per share it opened for trading, while that of Sterling Financial Holdings Company Plc stood at N4.05 per share as of September 13, 2024, about 0.24 per cent decline from N4.29 it closed 2023.
FBN Holdings and Sterling Financial Holdings Company announced plans to raise N300 billion and N200 billion fresh capital from the Exchange, respectively.
FBN Holdings this year hit N1.58 trillion in market capitalisation when its price rose to N43.95 per share 52-high.
The group announced N411.99 billion profit before tax in its unaudited H1 2024, which was about a 101 per cent increase from the N205.05 billion declared in the corresponding half year ended June 30, 2023.
United Bank for Africa Plc (UBA) saw its stock price at N223.70 per share, about a 1.95 per cent decline from N25.65 per share, while Unity Bank Plc stood at N1.51 per share as of September 13, 2024, a decline of 0.11 per cent from N1.62 per share.
Stanbic IBTC Holdings, however, emerged as the worst-performing banking stock on the Exchange, dropping significantly by 12.15 per cent to N57.50 per share as of September 13, 2024, from N69.65 per share it closed for trading in 2023.
Jaiz Bank Plc trading at N2.26 per share as of September 13, 2024, was an increase of 0.32 per cent from N1.94 per share it opened for trading in 2024, while Wema Bank Plc moved to N6.40 per share as of September 13, 2024, an increase of 0.8 per cent from N5.60 per share the stock closed 2023.
Analysts at United Capital stated that high rates in the fixed-income market will continue to impact the equities market, adding however, that market resilience will persist in the remaining part of the year.
