Since the announcement of the banking recapitalization exercise by the CBN, investors in the NGX have reacted, albeit in pessimistic fashion.
Recall that on March 28, 2024, the CBN revised the minimum capital requirements for banks. And since then, the market capitalization of banking stocks in the NGX has declined by 26.7%. Between March 28 and April 18, the cumulative market cap of banking stocks in the NGX declined from N8.08 trillion to N6.34 trillion.
The biggest losers within this period were GTCO Holdings which lost 34.57%, with its share price declining from N52.5 to N34.35. Access Holdings has lost 29.59%, with its share price moving from N24.50 to N17.25.
Other significant losers are FBNH, Sterling Holdco, Zenith Bank, and UBA, whose share prices have declined by 24.2%, 21.3%, 19.1%, and 18.9% respectively. This scenario offers insight into investor sentiment towards banking equities since the announcement of the recapitalization exercise.
Experts who spoke to Naijaonpoint reacted to the development, provided different thought positions.
Adebayo Adebanjo, a Senior Analyst with CardinalStone Securities attributed investors’ sentiments to “market worry”. He pointed out that the impact stems from the shareholding dilution resulting from capital raises through rights issues.
Although banks have a two-year deadline to shore up their capital bases to meet the minimum capital requirements, banks listed on the NGX have started making efforts to increase their paid-up capital through capital raises.
For example, UBA, Zenith Bank, FBN Holdings, GTCO Holdings, and Access Holdings have announced upcoming rights issue programmes.
Adebanjo noted,
Naijaonpoint engaged with some retail investors in the NGX who held shares in various banking stocks to gauge their response to these rights issues.
A retired civil servant, Mrs Alabi (not real name), expressed sentiments of a shareholding dilution that the rights issues will create.
The bearish sentiment of banking equities since the announcement of the recapitalization exercise has reflected in the NGX within the timeframe. Since March 28, the NGX’s All Share Index has declined by 4.51%, reaching 99,845.91 points on April 18, from 104,562.06 points on March 28.
According to Oluwaseun Magreola, the Head of Investment Management at STL Asset Management Limited, this bearish sentiment was beyond banking stocks. He provided a general overview of the market, highlighting the correlation with the interest rates in the fixed income markets, as well as the hiked MPR.
Magreola asserted that the reaction to the high yields in the fixed income market was “quite slow”, noting that most investors were waiting to earn their dividends.
Oluwaseun Magreola, formerly a portfolio manager at Meristem Wealth Management, underscored the significance of prospective mergers and acquisitions within the banking sector in influencing the performance of banking stocks.