FBN Capital’s Banks sector report indicates more banks to raise capital in 2015.

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In the new Banks Sector Report for September 2014, FBN Capital Limited, the investment banking and asset management subsidiary of FBN Holdings Plc, predicts that new capital rules will force more banks in Nigeria to raise capital in the coming year.

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Between January and August 2014, Nigerian banks raised a total of close to N340bn (US$2.1bn) similar to the entire amount raised in 2013.

FBN Capital Limited has predicted that more banks are likely to raise capital in 2015 as a result of the Central Bank of Nigeria’s new capital requirement rules which are likely to come into effect in the next six to nine months.

According to the analysts, “We do not expect the regulatory environment through 2015 – in terms of new pronouncements out of the central bank - to be anywhere as burdensome as the last two years. Notwithstanding, we acknowledge that new capital requirement rules (already announced) which are likely to come into effect over the next 6-9 months will put pressure on banks to raise additional capital, including tier 1”.

Following Diamond’s recently completed rights issue; Access is likely to be first out of the blocks in 2015 to come out with its own, the equity researchers stated. “We believe both Access and Diamond’s ROAE could return to the upper-teens to 20’s within two years as the capital is deployed. As such, their current P/B multiples of 0.8x (Access) and 0.4x (Diamond) are unjustified in our view”.

According to the report, between January and August 2014, Nigerian banks raised a total of close to N340bn (US$2.1bn) similar to the entire amount raised in 2013. However, these capital raising exercises were not carried out solely to boost banks’ capital bases for regulatory (compliance) reasons. US Dollar funding requirements by customers in many cases led the banks to tap the capital markets.

The report further stated that it is expected that more banks will come to the market to raise additional funds in H2 2014 and 2015. The reason for this capital raising frenzy over the past 18 months and the continuation that is expected in the near to medium term is that as at the start of 2013 (apart from needing to meet borrowers’ demands for loans), banks had begun to feel uncomfortable about the safety gap which existed between their capital adequacy ratios (CARs) and the required minimum ratio of 15% as stipulated by the central bank for banks classified as international banks.

Despite the pressure on earnings, the macroeconomic environment remains supportive. Oil prices continue to be firm and the naira has been relatively stable. Over the 2014-16E period, we expect GDP growth to be around 7% and inflation to remain under control. We believe this outlook supports loan book expansion of 15-20% in the medium term without any marked deterioration in asset quality.

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About FBN Capital: FBN Capital Limited is a subsidiary of FBN Holdings Plc, and is a full service Investment Bank and Asset Management Company with a reputation as a trusted and respected financial institution. Backed by significant financial capacity and a strong tradition of governance, the business is built on the core principle of creating value and wealth for all stakeholders. At FBN Capital we provide strategic advice, arrange finance, administer assets, manage funds, sell investment products and invest alongside clients. FBN Capital offers financial solutions to individuals, institutions and sub-nationals through five key divisions: Investment Banking; Markets; Trust and Agency Services; Asset Management; and Alternative Investments.

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FBN Capital Research Team
FBN Capital
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