Nigeria’s banking recapitalisation & the path to financial system stability

Nigeria's banking sector has been abuzz with activity since the announcement of the bank recapitalization initiative in March 2024. Major banks such as GTCO, Access, Zenith, Fidelity, and FCMB have collectively raised approximately 1.27 trillion naira through various capital-raising efforts as of October. The focus now shifts to how much closer the Nigerian financial system is to achieving stability. Muyiwa Oni, the Regional Head of Equity Research for West Africa at Standard Bank Group, joined CNBC Africa to discuss the progress and concerns surrounding this initiative. The Securities and Exchange Commission's e-offering platform has played a crucial role in facilitating the capital-raising efforts of these banks. According to Oni, the platform has enabled a shorter time to market, expediting the process of accessing much-needed funds. He highlighted the importance of swift access to funds, considering the regulatory scrutiny and verification processes banks have to navigate to ensure compliance with anti-money laundering and debt financing regulations. Despite the success of several banks in raising substantial capital, there were initial concerns regarding the process. Oni identified three main areas of concern. Firstly, the challenging high-interest rate environment raised doubts about investor allocation towards equities versus fixed income securities, impacting equity investments. Secondly, the announcement of windfall tax imposed by the government added complexity to the situation, leading to skepticism among foreign portfolio investors. Lastly, institutional capital allocation to equities, particularly from pension funds, remained limited, necessitating external funding sources to meet capital requirements. The differentiation between tier one and tier two banks in the capital-raising process also raised concerns initially. While some banks like GT, Zenith, and Access opted to raise the entire required capital upfront, others, including Fidelity and FCNB, adopted a staggered approach. This approach involved initial fundraising through rights issues, with potential follow-up placements to meet the capital requirements gradually. The Central Bank's extended deadline until March 2026 allowed for varying approaches in the capital-raising process. Looking ahead, the question remains whether Nigeria's financial system is on track to attract foreign portfolio investors and sustain the momentum of capital-raising initiatives. The road to stability requires strategic positioning to harness both external and internal funding sources efficiently. While major banks have made significant strides in raising capital, there is still work to be done to bridge the gap towards financial stability in Nigeria's economy. With a current GDP of around $250 billion, the journey towards a $1 trillion economy remains a considerable feat.