Deposit Money Banks, DMB, in Nigeria raised a total of about N340bn ($2.1bn) between January and August this year, similar to the entire amount raised in 2013, according to a new banking sector report.
The Bank Sector Report for September 2014 by FBN Capital Limited, the investment banking and asset management subsidiary of FBN Holdings Plc, however, stated that the capital raising exercises were not carried out solely to boost the banks’ capital bases for regulatory compliance reasons.
United States dollar funding requirements by customers, in many cases, led the banks to tap the capital market, according to the report.
The report predicts 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.
The report stated, “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 six to nine months, will put pressure on banks to raise additional capital, including tier 1.”
It further stated that following Diamond Bank’s recently completed rights issue, Access Bank was likely to be first out of the blocks in 2015 to come out with its own.
The report stated that it was expected that more banks would come to the market to raise additional funds in the second half of 2014 and 2015.
It further stated that the reason for this capital raising frenzy over the past 18 months and the continuation that was expected in the near to medium-term was that at the start of 2013 (apart from needing to meet borrowers’ demands for loans), banks had begun to feel uncomfortable about the safety gap that existed between their capital adequacy ratios and the required minimum ratio of 15 per cent as stipulated by the CBN for banks classified as international banks.
Despite the pressure on earnings, the macroeconomic environment remains supportive, said FBN Capital, adding that oil prices continued to be firm and the naira had been relatively stable.
“Over the 2014-16 period, we expect GDP growth to be around seven per cent and inflation to remain under control. We believe this outlook supports loan book expansion of 15-20 per cent in the medium-term without any marked deterioration in asset quality,” the company stated.
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