The current economic hardship in the country may deprive many retail investors of the opportunity to participate in the ongoing bank recapitalization, investment experts have observed.
Most banks are currently on a fundraising spree to increase their minimum capital to N500 billion, N200 billion and N50 billion depending on the operating category.
Afrinvest, in its 2023 banking sector report, said the banking industry would need N4.1 trillion (about $3 billion) to meet the new minimum capital requirements.
The banks are hoping to achieve that through a blend of options, including public offerings, right issues as well as mergers and acquisitions.
The process is coming at a time when the country is facing one of its worst economic crises, which has eroded the purchasing power of the average citizen. This could hand over the new shares being issued to institutional and foreign investors while existing holdings by retail investors will be diluted.
Economists who spoke in separate interviews said it may be difficult for small investors to mobilise enough funds to key into the exercise.
The Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere, who agreed with the CBN that there is a need for the banks to raise their capital base, said naira depreciation has eroded the value of the working capital of Nigerian banks, necessitating the recapitalisation so that they can meet the demands of big-ticket transactions.
“Two years seems to me to be enough time for the banks to recapitalise. However, unlike the previous recapitalisation exercise under the Chukwuma Soludo-led Central Bank of Nigeria (CBN), the economy is currently undergoing a rough patch of stagflation, with the macroeconomic fundamentals heading south.
“The implication is that this exercise may not likely promote popular capitalism where so many Nigerians will get involved in retail share owning,” he said.
Also, Prof. Godwin Oyedokun of Lead City University said that while the bank recapitalisation exercise is necessary to strengthen the banking sector, it presents a significant challenge for small investors in the current economic climate.
According to him, banks would need to be strategic in their capital-raising efforts to beat the deadline given the headwinds.
“An economic downturn typically reduces profitability, making it difficult for banks to generate organic capital. Moreover, investors might be more cautious in injecting funds into the sector due to overall economic uncertainty,” he said.
He said several factors could pose challenges to banks in meeting the new capital base.
“A prolonged economic downturn can lead to increased loan defaults and provisions, eroding capital buffers. Again, high inflation as we now have, erodes the value of assets and income, making it difficult for banks to maintain capital adequacy ratios. We also have fluctuations in the exchange rate that can impact the value of foreign currency assets and liabilities, which affects capital adequacy.
“Banks might face challenges in raising capital through equity or debt instruments due to market conditions. Again, compliance with new regulations and supervisory requirements can divert resources away from capital-building activities,” he said.
Oyedokun said while the recapitalisation exercise is crucial for the stability of the banking sector, it is essential to consider the economic context.(Guardian)
