The ongoing bank recapitalization effort increased deals in Nigeria’s stock market by 44% in the first seven months of 2024, according to THE NEWS CHRONICLES’ research.
According to stock transaction data provided by the Nigerian Exchange Limited (NGX), deals from January to July 2024 totaled N941.62 billion more than those during the corresponding period in 2023.
The total amount of equity transactions in the seven months leading up to July was N3.095 trillion, compared to N2.154 trillion in the seven months leading up to July 2023.
The Nigeria Exchange Group (NGX) experienced a wild ride in the first half of 2024 as a result of changes in policy and macroeconomic conditions agitating the market.
According to research analysts at Lagos-based Comercio Partners, “the banking sector stole the show, grappling with its recapitalization saga, which drove much of the market’s ups and downs.”
Comercio Partners’ study added in their second half (H2) macroeconomic and markets outlook, “There would be more activities in the equity space, as banks given the ongoing recapitalization would raise more capital to meet the benchmark.”
Since banks stepped up their capital-raising initiatives, the volume of activity on the Nigerian stock exchange has peaked.
Banks that have completed their capital raising programs on the exchange include Fidelity, GTCO, and Access Holdings; however, FCMB Group and Zenith Bank are still looking to sell shares.
A two-year bank recapitalization project, starting on April 1 and finishing on March 31, 2026, was announced by the Central Bank of Nigeria (CBN) on March 28, 2024.
In their most recent mid-year economic report, analysts at Lagos-based Coronation Research stated that “the exercise would potentially lead to the influx of capital into the domestic economy through offshore capital-raising activities and strengthen the capacity of lenders to support credit creation in the real sector as stronger and more resilient banking entities emerge post-recapitalization.”
“On the other hand, the exercise might encourage risky behavior in an effort to raise the necessary capital, and it would dilute returns for current bank shareholders.”
The analysts added, “Furthermore, the recapitalization exercise could lead to the concentration of market power for a few banks.”
The market’s return for this year, which as of July 31 was +30.76 percent, has been declining recently. On Friday, August 23, it was at +28.35 percent.
“The Nigerian stock market began the year strong, with significant gains in January, but the momentum reversed in the following months as the CBN’s hawkish stance and disappointing corporate earnings eroded investor confidence, leading to a largely bearish first half,” Meristem analysts stated in their half-year 2024 report.
“For the rest of the year, we anticipate that the equities market will trade sideways. Nonetheless, we anticipate an overall favourable picture for the Nigerian stocks market in 2024, as corporate actions and performances, as well as increased liquidity in the foreign exchange market, raise investor sentiment, impact activity levels, and drive development in the local bourse.”
In the first seven months of 2024, domestic stock purchasers led the exchange in transactions, nearly doubling to N2.497 trillion from N1.96 trillion in the same period in 2023, according to the NGX’s domestic and foreign portfolio investment (FPI) report.
In a report titled “Tightrope, Balancing Growth,” Coronation Research analysts added, “Banks may meet the new requirement through the following options: issuance of new common shares (by way of public offer, rights issues, or private placements); mergers and acquisitions (M&As); and upgrade/downgrade of their respective license category or authorization.”
Retail investors also doubled their equity transactions during the study period, reaching N1.27 trillion in seven months as opposed to N640.44 billion during the same time in 2023. The value of transactions made by domestic institutional investors was N1.226 trillion, which is less than the N1.328 trillion recorded from January to July of 2023.
The CBN’s recapitalization plan stipulates that commercial banks holding national, regional, and international licenses must have a minimum of N50 billion, N200 billion, and N500 billion in capital, respectively. Additionally, the CBN increased the capitalization thresholds for non-interest banks (national, N20 billion, and regional, N10 billion) and commercial banks (N50 billion).
