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Banks to raise additional N760.5bn capital this year
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Current data indicate that Nigerian banks have raised approximately N1.04 trillion ($8.9 billion) since pre-consolidation, which has resulted in an increase of shareholders’ funds to approximately N1.5 trillion (US$13 billion) as at December 2007.
Banks raised N950 billion in fresh capital last year alone as available data showed that total banking sector shareholders’ fund grew by 134 percent to N1.5 trillion from 2006 to 2007.
Renaissance Capital Group, in its report on Nigerian equity market, estimated that about N760.5 billion ($6.5 billion) of fresh capital is in the pipeline for banks before the end of 2008, which would bring total expected capital raised to more than N1.75 trillion ($15 billion).
Though capitalisation ratios of banks are currently high, averaging about 20 percent, against the industry requirement of 10 percent, several capital raising exercises were still lined up for execution before year-end, Renaissance Group noted in its forecast.
Nonetheless, banks do not seem to be in a hurry to go for fresh funds through public offers yet with only two banks having floated public offers five months into the year besides Zenith Bank’s offer which spilled into the New Year. Though the bank’s offer opened in December it dragged into January to close on the 17th. However, First Inland Bank’s offer opened on January 3, 2008, while that of Skye Bank followed barely two weeks later on January 14.
Though total subscription value is not yet made public, both banks sought to raise N85.5 billion and N50 billion respectively. Unity Bank and Spring Bank plc are some of the other banks planning public offers before the end of the year.
The group maintained that though the banking sector has already undergone a phase of consolidation, its view is that banks with excess capital will focus on scaling up their businesses over the next couple of years, resulting in a second round of mergers and acquisition activity which would be one the key differentiating factors between the nation’s banking sector and other sub-Saharan African banking markets.
The increased capital base of banks has enhanced their capacity to lend to the economy, particularly the real sector.
Banking sector’s credit to the real sector stood at N5.2 trillion as at January 2005. This has accounted for a 33 percent increase in industry total loans and advances to N2 trillion (US$16 billion), a significant improvement over the 14 percent increase in the previous year.
While a detailed breakdown of credit allocation has not yet been provided by the CBN, “we understand from discussions with banking participants that lending is dominated by high-end blue chips and medium-sized corporate organisations.” It noted that the reforms in the banking sector, have significantly strengthened banks’ balance sheets in the past 12 months hence funding would not be an issue and capital adequacy requirements (10 percent in Nigeria) are handsomely covered (most Nigerian banks have a capital adequacy ratio (CAR) in excess of 20 percent).
The group, in its assessment of the nation’s banking sector, was however skeptical about the ability of the banks to effectively deploy this capital in the medium term.
“The winners, in our view, will be banks with strong management teams, solid franchises, innovative and guided strategies and robust risk-management processes.”
“Longer term, we estimate consolidation will create 12-15 leading banks in Nigeria, but we currently do not foresee a second major wave of consolidation before the end of 2008. This momentum is expected to continue in 2008 with growth of 60-70 percent in 2008.”
The combination of accelerating economic growth, infrastructure development and the continued expansion of domestic liquidity, Renaissance expects, would ensure continued lending momentum over the coming years.
Banks raised N950 billion in fresh capital last year alone as available data showed that total banking sector shareholders’ fund grew by 134 percent to N1.5 trillion from 2006 to 2007.
Renaissance Capital Group, in its report on Nigerian equity market, estimated that about N760.5 billion ($6.5 billion) of fresh capital is in the pipeline for banks before the end of 2008, which would bring total expected capital raised to more than N1.75 trillion ($15 billion).
Though capitalisation ratios of banks are currently high, averaging about 20 percent, against the industry requirement of 10 percent, several capital raising exercises were still lined up for execution before year-end, Renaissance Group noted in its forecast.
Nonetheless, banks do not seem to be in a hurry to go for fresh funds through public offers yet with only two banks having floated public offers five months into the year besides Zenith Bank’s offer which spilled into the New Year. Though the bank’s offer opened in December it dragged into January to close on the 17th. However, First Inland Bank’s offer opened on January 3, 2008, while that of Skye Bank followed barely two weeks later on January 14.
Though total subscription value is not yet made public, both banks sought to raise N85.5 billion and N50 billion respectively. Unity Bank and Spring Bank plc are some of the other banks planning public offers before the end of the year.
The group maintained that though the banking sector has already undergone a phase of consolidation, its view is that banks with excess capital will focus on scaling up their businesses over the next couple of years, resulting in a second round of mergers and acquisition activity which would be one the key differentiating factors between the nation’s banking sector and other sub-Saharan African banking markets.
The increased capital base of banks has enhanced their capacity to lend to the economy, particularly the real sector.
Banking sector’s credit to the real sector stood at N5.2 trillion as at January 2005. This has accounted for a 33 percent increase in industry total loans and advances to N2 trillion (US$16 billion), a significant improvement over the 14 percent increase in the previous year.
While a detailed breakdown of credit allocation has not yet been provided by the CBN, “we understand from discussions with banking participants that lending is dominated by high-end blue chips and medium-sized corporate organisations.” It noted that the reforms in the banking sector, have significantly strengthened banks’ balance sheets in the past 12 months hence funding would not be an issue and capital adequacy requirements (10 percent in Nigeria) are handsomely covered (most Nigerian banks have a capital adequacy ratio (CAR) in excess of 20 percent).
The group, in its assessment of the nation’s banking sector, was however skeptical about the ability of the banks to effectively deploy this capital in the medium term.
“The winners, in our view, will be banks with strong management teams, solid franchises, innovative and guided strategies and robust risk-management processes.”
“Longer term, we estimate consolidation will create 12-15 leading banks in Nigeria, but we currently do not foresee a second major wave of consolidation before the end of 2008. This momentum is expected to continue in 2008 with growth of 60-70 percent in 2008.”
The combination of accelerating economic growth, infrastructure development and the continued expansion of domestic liquidity, Renaissance expects, would ensure continued lending momentum over the coming years.
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