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By Chinwendu Obienyi
After posting gains on Monday, stocks of some financial institutions listed on the floor of the Nigerian Exchange Limited (NGX) suffered declines at the close of transaction proceedings on Tuesday.
The stocks had appreciated on the first trading day after the Central Bank Governor, Dr. Olayemi Cardoso, hinted that banks will be required to recapitalise to service the $1 trillion economy projected by President Bola Tinubu.
Recapitalisation is the process of infusing funds into banks to enable them to meet the mandatory capital adequacy set by a central bank.
Speaking during the 58th annual Bankers’ Dinner, Cardoso said that a stress test performed on Nigerian banks revealed that while they would withstand mild to moderate stress, they would be unable to service a $1 trillion economy hence the need for recapitalisation.
“It is not just about the stability of the financial system in the present moment, as we have already established that current assessment shows stability.
However, we need to ask ourselves: Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future? In my opinion, the answer is “No!” unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital”, Cardoso said.
This announcement has since brought about reactions as the likes of FBN Holdings, Sterling Holdings and others appreciated on Monday. However, owing to fears that this may affect smaller banks, investors booked their profit in the shares of Access Corp, Zenith Bank Plc and others.
Consequently, the NGX All-Share Index (ASI) dropped 0.44 per cent to close at 71,041.05 points.
Furthermore, market capitalisation fell to N38.88 trillion from N39.04 trillion recorded in the previous trading session. This meant that investors lost about N165 billion and market’s year-to-date dropped to 38.61 per cent.
According to the market data obtained from the NGX’s website, 40 stocks depreciated in value while 19 others appreciated. Among the 19 that appreciated include bank stocks which include: FBN Holdings Plc, Fidelity Bank Plc, UBA, Unity Bank appreciated whole the value of other banks listed on the NGX dropped significantly.
According to analysts at CSL Stockbrokers, the dollar equivalent of N25 billion at that time was significantly lower than what it is today, and many believe this may be the reason behind the proposed recapitalization.
It noted that this point, since the CBN has not given details on how much capital will be required, it is impossible to say what amount of capital will be needed by each bank and which of these banks may likely resort to a merger to meet the CBN’s new requirements.
“However, looking at the disparity in shareholders’ funds between the Tier 1 and Tier 2 banks, one can conclude the smaller banks may be the most affected”, they said.
Speaking further, analysts at Afrinvest, said, We anticipate that the market could close negative when trading resumes today due to uncertainty and weak investors’ sentiment”.
