Nigerian Banks in Race to Bolster Capital Amid Economic Expansion Prospects

Access Holdings and other major banks in Nigeria are intensifying efforts to strengthen their capital reserves as they position themselves to capitalize on economic expansion opportunities and secure significant deals in the dynamic financial landscape.

Leading the charge, Access Holdings successfully completed a $300 million (approximately N240 billion) capital investment into its flagship subsidiary, Access Bank Plc, back in April.

Following this move, other banks in the country, including Fidelity Bank, are now taking proactive steps to attract potential investors and bolster their capital positions. Fidelity Bank recently announced plans to raise capital through a combination of a public offer and a rights issue, with the potential to generate around N96.3 billion in fresh capital.

Similarly, FBN Holding seeks shareholder approval ahead of its upcoming annual general meeting on August 15 for a capital raise transaction through a Rights Issue, subject to regulatory approvals.

Market experts believe that several key drivers, including macro-economic headwinds, are fueling the surge in capital-raising activities among banks. By fortifying their capital base, banks aim to withstand potential losses and maintain robust balance sheets in the face of increased scrutiny of financial books under a new CBN governor. Heightened oversight may lead to a reevaluation of loans previously classified as performing, potentially disclosing them as non-performing upon closer examination.

Similarly, the increase in non-performing loans has further emphasized the importance of shoring up capital to remain compliant with regulatory capital adequacy ratios.

According to experts, Tier 2 and regional banks should seek to raise new capital to safeguard against falling below the required 15 per cent and 10 per cent Capital Adequacy Requirements, respectively.

The Central Bank of Nigeria recently released key financial indicators for the banking sector as of April 2023.

According to the disclosure, the Capital Adequacy Ratio (CAR) stood at 12.8 per cent, the Non-Performing Loans (NPLs) ratio at 4.4 per cent, and the Liquidity Ratio (LR) at 45.3 per cent.

While these indicators may currently seem positive, there are skeptics who believe they could deteriorate under renewed scrutiny.

Similarly, the apex bank some time ago set a November deadline for Nigerian banks to begin implementation of Basel II guidelines, however, no new directives or updates have been made since then.

Additionally, the implementation of the latest Basel III requirements has prompted banks to seek additional capital to meet global capital adequacy benchmarks.

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