Banking stocks hit N7.91tn market cap amid fresh recapitalisation round

Banking stocks on the Nigerian Exchange Limited recorded a market capitalization of N7.91 trillion at the close of trading on Friday.

This comes as a second group of banks prepares to raise funds to meet the new capital requirements set by the Central Bank of Nigeria.

The market cap of the 13 banks analysed by The PUNCH stood at N6.22tn as of June 3, indicating that between the time that the banks commenced their recapitalisation efforts and now, they have gained about N1.69tn or appreciated by 27.19 per cent.

The financial institutions analysed include United Bank for Africa; Zenith Bank; Access Holdings; FBN Holdings and Ecobank

Others are Fidelity Bank; Guaranty Trust Holding Company; non-interest bank, Jaiz Bank; Sterling Financial Holding Company; Unity Bank; Wema Bank; FCMB Group and Stanbic IBTC Holdings.

Within the period under review, the banks in the N1tn market cap club have also increased.

From just two, GTCO and Zenith Bank on June 3 to four as of Friday as UBA and FBN Holdings swell the ranks.

The Managing Director of Arthur Stevens Asset Management Limited, Tunde Amolegbe, affirmed that the recapitalisation exercise had boosted the market cap of the lenders, albeit indirectly.

Amolegbe, a former resident/chairman of the Council of the Chartered Institute of Stockbrokers, said, “For banks that have raised additional capital, what you have seen is that their share prices have gone up although they have not allotted the shares, and the process has not finished; their share prices have reacted that they have finished the offer and the reason is simple.

“The stock market is a forward pricing market and analysts have worked on the fact that they now have higher capital into the valuation and they have worked on the fact that higher capital means higher gross income, and that is why you are seeing their share price respond to the fact that these organisations are much bigger now and their capacity to increase earnings have also grown.”

Projecting that the market cap would go higher, Amolegbe noted, “That is the reason I referred to it as indirect, as the higher capitalisation is being driven by higher prices now rather than share capital.  By the time they finish the allotment, the number of issued shares will rise, which means the capitalisation will rise even further.”

The Chief Executive Officer of Cowry Treasurers Limited, Charles Sanni, in a chat with The PUNCH, echoed similar sentiments, saying, “The market capitalisation has not factored in the new shares because they have not been allotted. The performances of the banks are on the back of the profits that they have released and the interim dividend.

“Indirectly, the recapitalisation has an impact because the banks are now bigger having successfully recapitalised. Don’t forget that people are watching to see if the banks have been able to raise the capital and now that they have raised the capital, it has also positioned them to do more business in addition to what they have been doing, as seen from the earnings that they have released thus far.

“It speaks to the fact that people are beginning to see the opportunities that are in there as earnings will improve based on the fact they have more capital to do business.”

Last week, there was heightened buying interest in financial stocks, as liquidity flowed steadily into the market.

The banking index emerged as the week’s top performer, posting a 7.86 per cent week-on-week gain on the back of strong investor sentiments in UBA, FBNH, ACCESSCORP, and STANBIC.

Analysts have said that the positive sentiment followed the release of robust nine-month earnings from banks, providing investors with encouraging insights for year-end expectations.

In March, the apex bank announced new capital thresholds for banks operating in the country.

The CBN in new guidelines on its recapitalisation policy for banks in the country directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn.

According to the acting Director of Corporate Communications, Sidi Ali, who signed the notice, commercial banks with national licences must meet a N200bn threshold, while those with regional authorisation are expected to achieve a N50bn capital floor.

Similarly, non-interest banks with national and regional authorisations will need to increase their capital base to N20bn and N10bn, respectively.