Banking recapitalisation got unto the fast-lane with four banks jostling to raise more than N1 trillion in the first cluster of offers.
This is expected to be hallmark of the two-year plan.
Four commercial banks with international license – Fidelity Bank Plc, Access Holdings Plc, Guaranty Trust Holding Company (GTCO) Plc and FCMB Group Plc – which altogether needed to increase their capital base to N2 trillion, are seeking to raise about N1 trillion in the first phase of intense competition for investors’ funds.
The first cluster of offers came as the Central Bank of Nigeria (CBN) at the weekend said the ongoing recapitalisation will produce resilient and fit-for-purpose banks with more ability to grow the economy.
CBN Governor, Olayemi Cardoso, said banks recapitalisation will further strengthen the financial system and make it robust to be able to withstand economic headwinds.
Regulatory reports yesterday indicated that three other banks- Access Holdings, GTCO and FCMB have gotten approval to join Fidelity Bank in the capital market, with the four offers’ periods expected to overlap.
The four banks, which have combined share capital and share premium of N644.995 billion, need to raise N1.355 trillion to meet the new minimum capital requirement of share capital and share premium of N500 billion each, for a bank with international license.
Access Holdings will today open acceptance list for a N351 billion rights issue. Access Holdings is offering about 17.773 billion ordinary shares of 50 kobo each to existing shareholders at N19.75 per share. The rights are pre-allotted on the basis of one new share for every two ordinary shares held as at June 7. The offer is scheduled to close on Wednesday, August 14.
Fidelity Bank had launched a N127.1 billion hybrid offer including a rights issue of 3.2 billion ordinary shares of 50 kobo each at N9.25 per share and a public offer of 10 billion ordinary shares of 50 kobo each at N9.75 per share.
The acceptance and application lists for Fidelity Bank’s combined offer, which opened on June 20, are scheduled to close on July 29. The rights issue was pre-allotted on the basis of one new ordinary share for every 10 existing ordinary shares held as at the close of business on January 05.
In the largest of the fund raising so far, GTCO is launching a N400.5 billion public offer by 9.0 billion ordinary shares of 50 kobo each at N44.50 per share. GTCO, which had secured approval of the Nigerian Exchange (NGX), will meet with capital market stakeholders today to outline facts behind its offer, preparatory to the opening of formal application list.
FCMB Group has also secured approval for a N113.98 billion public offer. The group is offering 15.197 billion ordinary shares of 50 kobo each at N7.50 per share.
The current capital raisings by Access Holdings and GTCO are more than enough to meet their new capital requirements.
However, Fidelity Bank and FCMB Group are implementing multi-layered recapitalisation plans that may see the banks coming to the market as many times as needed to meet their capital requirements. There is indication that Fidelity Bank may raise more than N127.1 billion under the ongoing combined offer, given the generally positive investors’ sentiment around the bank. The board of Fidelity Bank has already launched a regulatory process that will allow the bank to absorb excess funds in the event of potential oversubscription.
Under the current recapitalization process, the Central Bank of Nigeria (CBN) is using a distinctive definition of minimum capital as addition of share capital and share premium, rather than the entirety of shareholders’ funds used under the 2004 recapitalisation plan. With the distinctive definition, nearly all banks need to raise funds to retain their banking license.
Access Holdings has share capital and share premium of N251.81 billion; FCMB, N125.29 billion; Fidelity Bank, N129.705 billion and GTCO, with N138.187 billion.
Speaking at the weekend during the launch of a new book: “The Power of One Man- How the Soludo-Engineered Consolidation Transformed Nigerian Banks to Global Players”, Cardoso said it was important that banks are recapitalised to the levels, where they will be able to absorb any shocks that come and also be able to grow the economy. The book was written by renowned journalist, Dr. Ray Echebiri.
Cardoso, who was represented by Deputy Governor, Financial System Stability, Phillip Ikeazor, said the apex bank had kept close touch with former CBN Governor and Governor of Anambra State, Prof. Chukwuma Soludo in the course of recapitalisation.
He said the decision taken by Soludo 20 years ago on banking consolidation was a very bold one at that time with banks’ capital base of N2 billion raised to N25 billion.
“That is about 12 and half times. Incidentally, the current management of CBN has embarked on another round of banking consolidation. Why was it necessary then, Prof Soludo wanted to make the banks robust, resilient and fit for purpose to grow the economy, and that is exactly the reason why we are embarking on a similar journey today.
“I think by coincidence, if you check the amount of the minimum capital levels that we required, it is pretty similar because international banks are moving from N50 billion to N500 billion, which is 10 times, similar to Soludo’s 12 and half times. Our national banks are moving from N25 billion to N200 billion, roughly about 10 times. When you do consolidation, you would look at the microeconomic headwinds, the microeconomic conditions on ground and of course apply your stress test.
“And when you apply your stress test today, which I am sure all of the big banks have done, they would have second-guessed where the capital levels are going to land. If you compare the bank assets in Nigeria to Gross Domestic Product (GDP) and compare it with similar economies in Africa, you can see that we are way, way behind,” Cardoso said.
Providing more reasons why bank recapitalization was crucial, he said: “Remember that when the current administration came into place, there were unification of forex rates, and removal of petrol subsidy. And the impact on the economy and manufacturing sector has started manifesting in 2024 and will continue over the next few years. So, it is important that the banks are recapitalized to the levels, where they will be able to absorb any shocks that come and also position the banks to be able to grow the economy”.
Addressing the consistent hike in interest rates, he said although the jury is out and everyone debating what it should be, Cardoso insisted on the need to tame and control inflation to ensure the economy does not go into hyperinflation.
He explained that hyperinflation is very difficult to reverse and takes several years to get out of it.
“There is a South American country that still has quite significant oil reserves but is facing hyperinflation. Everybody is aware of what is happening in that economy. We have our brothers in East Africa, who are also facing hyperinflation and we know how hard they are struggling to come out of it,” Cardoso said.
On how long the CBN will sustain the hike in interest rate, he said the apex bank will continue to maintain high interest rate, as long as it is able to control and reverse galloping inflation.
He explained that Western countries, have also raised interest rates for long, and are yet to lower the rates, at present.
“So, it is important that we tighten and hold on for a little while, and in no distant future, we will be able to be slowing down on the rate hikes,” Cardoso said.