In a move signaling support for the Central Bank of Nigeria’s (CBN) banking sector consolidation initiative, the Presidency has asserted that it will contribute to propelling the country’s economy to new heights. This endorsement comes merely five days after the CBN’s announcement of plans to instruct banks to raise additional capital.
During the 40th Anniversary Celebration of The Guardian Newspapers in Lagos, President Bola Tinubu’s Special Adviser on Information and Strategy, Bayo Onanuga, represented him and emphasized the importance of considering the capital adequacy of Nigerian banks in light of the nation’s ambition to achieve a $1 trillion economy in eight years.
Onanuga stated, “To arrive at the $1tn economy, we must address the capital adequacy of our banks that will prepare the fuel for this journey.”
At the 58th annual Bankers’ Dinner, CBN Governor Olayemi Cardoso stressed the need for banks to increase their capital to withstand the challenges of servicing a projected $1tn economy. He noted that while Nigerian banks could endure mild to moderate stress, further strengthening was necessary.
In response to the announcement, investors have shown increased interest in Tier-1 bank stocks listed on the Nigerian Exchange Limited. Some reports suggest that larger banks might be eyeing potential acquisitions of smaller and weaker banks in light of the proposed sector consolidation.
Following the news of the potential recapitalization, several listed financial institutions experienced market capitalization gains. Notable among them were United Bank for Africa Plc, Zenith Bank Plc, Access Holdings Plc, FBN Holdings Plc, Sterling Financial Holdings Plc, and FCMB Group.
However, five banks, including Guaranty Trust Holding Company, Jaiz Bank, Unity Bank, Wema Bank, and Stanbic IBTC Holdings, witnessed a decline in market capitalization. Two lenders, Ecobank Transnational Incorporated Plc and Fidelity Bank, remained unchanged.
While some bank CEOs have welcomed the CBN’s policy direction, expressing readiness to raise fresh capital, others have proposed Rights Issues or public offers to meet the capital requirements. However, skepticism exists in the market about the ability of the local bourse to fully support the proposed recapitalization, with opinions varying among market players.
Minority shareholders have also voiced their conditions for supporting financial institutions, emphasizing the importance of track records, dividend payments, and communication with shareholders.
As the banking sector braces for potential changes, the market remains dynamic, with both optimism and caution prevailing among investors and industry observers.