By Chukwuma Umeorah
The race among tier-1 banks to retain their N1 trillion capitalization has intensified amid a challenging April for the banking sector, especially for banks’ stocks trading on the floor of the Nigerian Exchange Limited (NGX).
Despite their strong positions in the market, including robust market capitalizations exceeding N1 trillion on the NGX, major banking stocks posted declines on a month-to-date (MTD) basis.
This is no surprise judging from the fact that the All Share Index (ASI) – which tracks the general movement of all listed equities on NGX, fell by 6 per cent at the end of transactions in April 2024.
Similarly, this erosion of market values was driven by investor hesitancy towards banking stocks, particularly due to concerns over banking recapitalization and potential equity issuances owing to the Central Bank of Nigeria (CBN)’s directive to banks step up their capitalization in order to boost lending in the economy and strengthen banks’ regional and international competitiveness in the medium term.
As at December 2023 when the idea of banks’ recapitalization was first mooted, the largest banks in the country had combined market capitalization amounting to N4.2 trillion. However, in January, banks like Access Holdings, FBN Holdings, GTCO, UBA, Zenith Bank, reached the N1 trillion capitalization mark owing to investors’ appetite.
But Daily Sun investigations can reveal that the aforementioned banks saw their market capitalization plummet by the end of April. For instance, Access Bank, Nigeria’s largest bank by assets, saw its market cap plummet to N598.9 billion by April despite total assets exceeding N32 trillion and net asset value of N2.54 trillion. UBA also experienced a decline, with its market cap falling to N817.3 billion, despite substantial total assets and net assets at N25.369 trillion and N2. 611 trillion respectively.
Similarly, FBN Holdings witnessed a market cap peak above N1 trillion in early April, only to decline to N857.8 billion by month-end, despite robust total and net assets. GTCO faced a similar dip but made a comeback within the first week of May as its share price increased, with a current market cap of N1.12 trillion.
For its part, Zenith Bank maintained top position in the nation’s bourse but faces the possibility of dropping out if sell-offs persist this month.
Reacting to the development, market operators who spoke to Daily Sun, stated that the apex bank played a significant role in shaping investor sentiment, with announcements regarding banking recapitalization procedures and timelines which contributed to the apprehension among investors.
According to them, the possibility of additional equity issuances, often at discounted market prices, led existing shareholders to consider offloading their holdings to participate in these potential new issuances.
The Managing Director, Arthur Stevens Asset Management Limited, Olatunde Amolegbe, said, “The announcement and timeline by CBN opened the eyes of investors in the sense that they saw that these banks would come to the market for capital raising. The issuance of additional shares is typically associated with companies selling shares at discounted market price. It is expected that existing shareholders might be looking to offload what they are holding in order to participate in the new issuance that is likely to come at that discount.
Additionally, escalating CBN measures, such as tighter liquidity constraints and restrictions on FX positions, added to investor concerns regarding future earnings reports”.
Also speaking, the Vice-Chairman, Highcap Securities, David Adonri, noted that investors were highly disappointed with the directive from the CBN as regards banks not to use gains from foreign currency revaluation to pay dividends.
This, he said, led to mass exodus from banking stocks trading on the floor of the NGX. Adonri said, “It was because the dividend payout fell below investors’ expectations. A lot of investors rushed into the banking sector after the FX windfall. The investors thought that major gains realized would be shared to them. But the CBN restrained them from paying out dividends from the FX gains. Although they did not pay lower than what was paid last year, but because the prices of the bank stocks had moved very highly, investors expected more.”