Many Nigerian commercial lenders may find it tough raising fresh capital this year as both offshore and local investors dump shares of banks listed on the Nigerian Stock Exchange (NSE).
Most of the lenders are already positioning to raise Tier-1 capital to beef-up their operations and increase shares of the market.
However, the down turn in the capital market caused by falling global oil prices, weak local currency and exit of offshore investors from the economy have further aggravated the condition in the capital market.
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| Emefiele, CBN Governor |
Nigeria's local bourse has falling to around six month low last week on persistent sell-off by investors on concern on possible devaluation of the local currency by the central bank.
"The ongoing sell-off in Nigerian bank stocks may make it more difficult for lenders to raise Tier – one capital to beef up their balance sheets," Report in Monday edition of BusinessDay showed.
Fitch Ratings, in a note released on Thursday, said Nigerian banks may witness a sharp deterioration in profitability, asset quality, and liquidity and capital ratios in 2015, due to increasingly difficult conditions in which they operate in.
If that were to materialise and banks needed to beef up capital to stay within Basel II requirements, then the sharp fall in their shares this year, will make investors balk at participating in any new equity issuance due to its potentially huge dilutive nature.
“Regulatory capital adequacy ratios are likely to fall further, due to lower earnings, weaker asset quality and a limited ability to raise capital. Tier 1 capital ratios could fall below 15% for many banks, which is low by historical standards for Nigeria,” Fitch said in the August 27 note.
FBN Holdings in particular, has a Tier – One capital ratio of 14 percent, according to data from its H1, 2015 results presentation.
Nigeria’s top largest banks, Guaranty Trust Bank, Zenith Bank, Access Bank and FBN Holdings had combined (Tier one and Tier 2) Capital Adequacy Ratios of 20.3 percent, 20.00 percent, 19 percent and 18.8 percent, respectively at the end of the Half Year 2015 period.
The Central Bank of Nigeria (CBN) has capital requirements of 16 percent for systemically important banks, meaning the banks have thin buffers if deterioration in earnings materialise.
Shares of all major banks have been hit by the bearish market sentiment towards financials and Nigerian stocks in general.
Access Bank stock has lost -29.2 percent, FBNH -33.5 percent, Diamond Bank -45.7 percent, GTB -13.7 percent, StanBic IBTC -30 percent, UBA -26.5 percent and Zenith Bank -21.2 percent, this year.
The banks have had to contend with the increased vulnerability of the oil and gas sector, pressure on the naira, the slower economy and tightening bank liquidity, which has made investors bearish on the sector.
Renaissance Capital, in a note released July 30, downgraded FBNH after the release of its H1 2015 results on significantly higher cost of risk (CoR) guidance of 3.5 percent, from 1.5 percent previously.
“Following changes to our forecasts and a reduction in our sustainable RoE to 15%, from 17%, we downgrade FBNH to SELL, from Hold, with our new TP of NGN6.6,” RenCap bank analysts, Adesoji Solanke and Olamipo Ogunsanya said.
FBNH closed trading at N5.85 a share on Friday.
Most Nigerian lenders are trading below tangible book value per share.
FBNH trades at 0.4 x, Access Bank 0.35 x, UBA 0.37x and Zenith Bank 0.83x.
Only GTB trades above book value per share among the tier – one bank’s at 1.88 xs.
Access Bank Plc recently failed to reach its target in a share sale offering 7.63 billion shares at N6.90 to existing shareholders at a ratio of one for three, as some investors balked at buying above the prevailing market price.
The company raised N42 billion ($211 million), short of a target of N53 billion, it said in an e-mailed statement on Aug, 19.
Fitch Ratings, in a note released on Thursday, said Nigerian banks may witness a sharp deterioration in profitability, asset quality, and liquidity and capital ratios in 2015, due to increasingly difficult conditions in which they operate in.
If that were to materialise and banks needed to beef up capital to stay within Basel II requirements, then the sharp fall in their shares this year, will make investors balk at participating in any new equity issuance due to its potentially huge dilutive nature.
“Regulatory capital adequacy ratios are likely to fall further, due to lower earnings, weaker asset quality and a limited ability to raise capital. Tier 1 capital ratios could fall below 15% for many banks, which is low by historical standards for Nigeria,” Fitch said in the August 27 note.
FBN Holdings in particular, has a Tier – One capital ratio of 14 percent, according to data from its H1, 2015 results presentation.
Nigeria’s top largest banks, Guaranty Trust Bank, Zenith Bank, Access Bank and FBN Holdings had combined (Tier one and Tier 2) Capital Adequacy Ratios of 20.3 percent, 20.00 percent, 19 percent and 18.8 percent, respectively at the end of the Half Year 2015 period.
The Central Bank of Nigeria (CBN) has capital requirements of 16 percent for systemically important banks, meaning the banks have thin buffers if deterioration in earnings materialise.
Shares of all major banks have been hit by the bearish market sentiment towards financials and Nigerian stocks in general.
Access Bank stock has lost -29.2 percent, FBNH -33.5 percent, Diamond Bank -45.7 percent, GTB -13.7 percent, StanBic IBTC -30 percent, UBA -26.5 percent and Zenith Bank -21.2 percent, this year.
The banks have had to contend with the increased vulnerability of the oil and gas sector, pressure on the naira, the slower economy and tightening bank liquidity, which has made investors bearish on the sector.
Renaissance Capital, in a note released July 30, downgraded FBNH after the release of its H1 2015 results on significantly higher cost of risk (CoR) guidance of 3.5 percent, from 1.5 percent previously.
“Following changes to our forecasts and a reduction in our sustainable RoE to 15%, from 17%, we downgrade FBNH to SELL, from Hold, with our new TP of NGN6.6,” RenCap bank analysts, Adesoji Solanke and Olamipo Ogunsanya said.
FBNH closed trading at N5.85 a share on Friday.
Most Nigerian lenders are trading below tangible book value per share.
FBNH trades at 0.4 x, Access Bank 0.35 x, UBA 0.37x and Zenith Bank 0.83x.
Only GTB trades above book value per share among the tier – one bank’s at 1.88 xs.
Access Bank Plc recently failed to reach its target in a share sale offering 7.63 billion shares at N6.90 to existing shareholders at a ratio of one for three, as some investors balked at buying above the prevailing market price.
The company raised N42 billion ($211 million), short of a target of N53 billion, it said in an e-mailed statement on Aug, 19.
CULLED FROM BUSINESSDAY
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