Nigerian Bank Shares Surge as Central Bank Signals Capital Buffer Strengthening

Nigerian bank shares experienced a surge on Monday as investor sentiment rose following the central bank’s announcement that banks should increase their capital to cushion against economic uncertainty.

FBN Holdings Plc led the way with a 10% increase to N22 per share, its highest-a-day increase in five months.

Access Holdings Plc and Sterling Financial Holdings Plc also joined the upward trend, recording gains of 4.3% and 5%, respectively.

The banking index, which gauges the performance of the country’s major lenders, rose 1.7% to 754.95, reflecting the most significant increase in almost a month.

Investors are interpreting the central bank’s directive as a precursor to potential capital-raising initiatives by banks.

Joshua Odebisi, a bank equity analyst at RMB Nigeria Stockbrokers, stated, “Investors are anticipating a few things that can happen, such as capital raising, which has potential upside for those taking a position now.”

He highlighted FBN as having significant room to fulfill higher capital requirements that the central bank might set.

Central Bank Governor Olayemi Cardoso announced the need for banks to raise additional capital as a safeguard against the challenges posed by the weaker naira and sluggish economic growth.

While specific details were not provided in the announcement, the industry expects forthcoming guidelines that may involve an increase in minimum shareholders’ equity and adjustments to capital adequacy ratios.

The move aligns with a broader industry trend of reinforcing capital buffers amid naira depreciation.

FBN had previously gained shareholder approval for a rights issue to raise up to 150 billion naira in fresh equity.

The central bank’s emphasis on capital strengthening comes as the Nigerian currency has experienced a 40% depreciation against the dollar since the easing of foreign-exchange controls in June.

FBN’s capital adequacy ratio stood at 16% in the third quarter, closely approaching the 15% minimum threshold for international banks.

In comparison, Access Bank reported a ratio of 19.6%, indicating a stronger position relative to regulatory requirements.