Recession: Banks resort to capital market to shore up base

The capital market will witness a massive return of the banks before the end of the third quarter of the year.

It is believed to be one of the means adopted by the banks to survive the recession currently hitting the Nigerian economy, according to an investigation.

The inflationary trend and loss of value of the local currency, the naira, are two factors that have weakened the current capital base of  most banks, which is a minimum of N25 billion for commercial banks and N100 billion for development banks.

Though some banks have doubled that amount, the economic down turn has made most of the banks look unviable to handle most financial transactions, locally and international.

A recent directive by government that more than 6,000 accounts in various banks be transferred to the central account in the TSA policy has seen vaults of most banks near empty, a situation that has made going to the public for reinvestment imperative, said a banker.

Also, the report that some international insurance firms covering oil and gas industry prefer partnering with foreign banks is said to be a major reason for the move by Nigerian banks to shore up their base.

As at last week, at least three banks had indicated their intention go for public offer.

One of them, FCMB, is to raise between 10 to 15 billion naira of Tier II capital to boost its balance sheet, and will target its retail investors for the offering, said its chief executive officer, Ladi Balogun.

For some time now, the bank has been slowing down loan growth, due to increased high interest rate of 14.8 per cent in the first half.

Another financial institution, Diamond Bank, is also considering raising fresh capital and selling some assets in order to maintain its capital ratios.

Read also: CBN goes borrowing to fight inflation

The CEO of the bank, Uzoma Dozie, said the bank’s capital plan will ensure it meets all regulatory requirements both in the short term and in the future.

Diamond Bank’s capital adequacy ratio had fallen to 15.6 per cent of assets by mid-year from 18.6 per cent a year ago.

He said his bank was doing a capital management plan that would determine how much capital is to be raised, including tenor.
“We are also looking at some assets that we can dispose of and we are a long way into that,” he said.

In the same line is Zenith Bank, which is said to be anticipating raising between 20 billion to 30 billion naira.

Its performance in 2016 half-year financial report reflects a turn over that cannot be compared with that of last year’s.

Others said they are still awaiting approval of boards to come out with plans on the public offer.

By Emma Eke…

 

 

 

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