Equity Transactions Soar by 44% Amid Banks’ Capital Raising Push

Nigeria’s equity market has seen a significant surge in transactions, driven primarily by the ongoing bank recapitalisation efforts.

According to recent data from the Nigerian Exchange Limited (NGX), equity deals from January to July 2024 skyrocketed by 44% from N2.154 trillion recorded in the same period in 2023 to N3.095 trillion.

This uptick in trading activity is largely attributed to the capital raising efforts by Nigerian banks, which are working to meet new regulatory requirements set by the Central Bank of Nigeria (CBN).

The recapitalisation exercise requires banks with international licenses to maintain a minimum capital base of N500 billion, while national and regional banks are required to hold N200 billion and N50 billion, respectively.

Merchant banks and non-interest banks also face revised capital requirements.

Several key banks, including Fidelity Bank, GTCO, and Access Holdings, have successfully completed their capital raising programmes on the stock exchange, with FCMB Group and Zenith Bank still in the process.

These efforts have significantly boosted the activity levels on the Nigerian bourse, leading to increased market liquidity and driving the surge in equity transactions.

Analysts have noted that the recapitalisation process has provided a much-needed stimulus for the equity market, which had experienced mixed performance earlier in the year due to macroeconomic shifts and fluctuating investor sentiment.

A research note from Comercio Partners highlighted that the banking sector’s recapitalisation saga played a central role in shaping market activity during the first half of 2024, contributing to both the highs and lows of the market.

As banks continue to raise capital to meet the new regulatory benchmarks, analysts predict further activity in the equity space.

“The recapitalisation exercise will likely continue to drive significant activity in the stock market as banks seek to raise more capital,” said analysts from Comercio Partners.

They expect increased participation from both domestic and foreign investors as banks aim to meet their capital targets through various means, including public offers, rights issues, and private placements.

The NGX’s domestic and foreign portfolio investment report for the first seven months of 2024 showed that domestic stock buyers led the way, nearly doubling their transactions to N2.497 trillion, up from N1.96 trillion during the same period in 2023.

Retail investors also contributed significantly to the market’s growth, with their transactions doubling to N1.27 trillion compared to N640.44 billion in 2023.

Domestic institutional investors, however, saw a slight decline, with transactions totaling N1.226 trillion, down from N1.328 trillion in the previous year.

Despite the overall growth, analysts caution that the recapitalisation process could lead to potential risks, such as the dilution of returns for existing shareholders and the concentration of market power in a few dominant banks.

Nevertheless, the consensus is that the ongoing recapitalisation exercise will strengthen the banking sector and position it for better performance in the future.

Looking ahead, market experts are optimistic about the outlook for the Nigerian equity market in the second half of 2024.

“We anticipate continued growth in the stock market, driven by the banking sector’s recapitalisation efforts, corporate actions, and improving liquidity in the foreign exchange market,” said analysts from United Capital in their H2 market outlook.

They added that a potential moderation of interest rates and an easing of monetary policy in advanced economies could further boost market sentiment and activity levels in the months ahead.