WHAT YOU SHOULD KNOW BEFORE INVESTING IN BANK SHARES
- Author: Damilola Aina
Key Points:
1. Central Bank Directive:
- Reason for Investment Focus: The Nigerian banking sector is a current investment hotspot due to a new Central Bank of Nigeria (CBN) directive.
- Mandate: Increase in minimum capital base for banks.
- International Banks: N500 billion.
- National Banks: N200 billion.
- Regional Banks: N50 billion.
- Non-Interest Banks: N20 billion (national), N10 billion (regional).
2. Recapitalisation Timeline and Methods:
- Timeline: Banks must meet new capital requirements by March 31, 2026.
- Methods to Raise Capital: Additional capital, mergers, acquisitions, and license changes.
3. Current Market Activity:
- Major Banks Raising Funds:
- Zenith Bank: N290 billion (exceeds the N230 billion target).
- Fidelity Bank: Increased target to N205.45 billion.
- Access Holdings: Raising N351 billion.
- Guaranty Trust Holding Company: Seeking N400.5 billion.
- FCMB Group: Aims to raise N110.9 billion through a public offer.
4. Strategic Approach:
- FCMB Group: Plans a three-phased approach to raise up to N397 billion, including forming a Technology Holding Company by 2026.
5. Investment Considerations:
- Capital Adequacy Ratios (CaR): Evaluate a bank’s ability to absorb losses.
- Asset Quality: Assess loan portfolios for non-performing loans.
- Profitability Metrics: Return on equity and return on assets.
- Funding Sources: Stability and diversity of funding bases.
- Management Quality: Strong leadership impacts performance.
- Market Position: Banks with robust market positions are generally more stable.
6. Pitfalls to Avoid:
- Mergers and Acquisitions: Potential risks and uncertainties.
- Economic Data: Monitor interest rates, inflation, and economic growth.
- Bank Status: Prefer tier-one banks for stability. Assess track records and management structure.
7. Expert Opinions:
- Prof. Segun Ajibola: Advises investing in tier-one banks for stability. Evaluate performance history and ownership structure.
- Charles Sanni: Emphasizes value based on earnings and dividends. Assess corporate governance and non-performing loan portfolios.
- Tajudeen Ibrahim: Highlights the importance of professional advice and understanding market offers.
Additional Notes:
- Financial Performance: Investors should check financial performance and forecasted values.
- Governance: Strong corporate governance is crucial.
- Author: Damilola Aina
Key Points:
1. Central Bank Directive:
- Reason for Investment Focus: The Nigerian banking sector is a current investment hotspot due to a new Central Bank of Nigeria (CBN) directive.
- Mandate: Increase in minimum capital base for banks.
- International Banks: N500 billion.
- National Banks: N200 billion.
- Regional Banks: N50 billion.
- Non-Interest Banks: N20 billion (national), N10 billion (regional).
2. Recapitalisation Timeline and Methods:
- Timeline: Banks must meet new capital requirements by March 31, 2026.
- Methods to Raise Capital: Additional capital, mergers, acquisitions, and license changes.
3. Current Market Activity:
- Major Banks Raising Funds:
- Zenith Bank: N290 billion (exceeds the N230 billion target).
- Fidelity Bank: Increased target to N205.45 billion.
- Access Holdings: Raising N351 billion.
- Guaranty Trust Holding Company: Seeking N400.5 billion.
- FCMB Group: Aims to raise N110.9 billion through a public offer.
4. Strategic Approach:
- FCMB Group: Plans a three-phased approach to raise up to N397 billion, including forming a Technology Holding Company by 2026.
5. Investment Considerations:
- Capital Adequacy Ratios (CaR): Evaluate a bank’s ability to absorb losses.
- Asset Quality: Assess loan portfolios for non-performing loans.
- Profitability Metrics: Return on equity and return on assets.
- Funding Sources: Stability and diversity of funding bases.
- Management Quality: Strong leadership impacts performance.
- Market Position: Banks with robust market positions are generally more stable.
6. Pitfalls to Avoid:
- Mergers and Acquisitions: Potential risks and uncertainties.
- Economic Data: Monitor interest rates, inflation, and economic growth.
- Bank Status: Prefer tier-one banks for stability. Assess track records and management structure.
7. Expert Opinions:
- Prof. Segun Ajibola: Advises investing in tier-one banks for stability. Evaluate performance history and ownership structure.
- Charles Sanni: Emphasizes value based on earnings and dividends. Assess corporate governance and non-performing loan portfolios.
- Tajudeen Ibrahim: Highlights the importance of professional advice and understanding market offers.
Additional Notes:
- Financial Performance: Investors should check financial performance and forecasted values.
- Governance: Strong corporate governance is crucial.