Business News

April 30 recapitalization disclosure deadline may not be attainable- ARM Research

Analysts at ARM Research have said that achieving the disclosure deadline for the implementation of the recapitalization plan for Nigerian banks, set for April 30th, 2024, may not be attainable due to the regulatory complexities involved.

The financial analysts stated this in their equity research for the banking sector update on the recapitalization report seen by Nairmetrics.

Exclusion of retained earnings

The analysts noted that the incorporation of retained earnings into the proposed capital raise for Nigerian banks would undermine the objectives of the recapitalization initiative.

They argue that many of these banks, particularly Tier-1 institutions, would require minimal or no additional capital raising.

Available options to meet the minimum capital requirement

They noted that the recapitalization exercise is long overdue, considering the last time it was done in 2005 and the devaluation of the Naira (approx. NGN132/1USD in 2005 vs. NGN1,300/1USD in 2024) within the period.

The analysts stated that options such as Mergers and acquisitions as well as Injection of fresh equity capital through private placements, rights issues, and/or offers for subscription are very likely.

They noted that elsewhere, before the release of the bank recapitalization exercise, Access Holdings had announced their plans to raise additional capital of N365 billion.

Effect of the FX revaluation policy and PMS subsidy removal

According to them, the passthrough effect of the FX revaluation policy and PMS subsidy removal on the Nigerian economy led to the deterioration of the quality of banking loans and consequently lower overall asset quality.