Nigerian banks’ stocks have risen since January 7, after several major lenders raised more than N1 trillion ($662 millions) on the stock market in order to meet new requirements for capital. According to TechCabal, the NGX Banking Index which tracks banking stocks was up 12.24% on Friday, February 14.
GTCO shares closed at 63.45 Naira on Friday (up 12.90% from January 7), while Zenith Bank’s shares closed at 51.60 Naira (up 4.03% after it announced its increase).
This rally in banking stocks is part of a wider wave of renewed investor faith in Nigeria’s economic situation. Nigeria, while the global markets remain volatile has quietly attracted foreign investments, bolstered through currency reforms and other steps aimed at stabilizing Africa’s largest economy.
The country has seen increased inflows following painful but necessary reforms for restoring stability. Bloomberg reports that Nigeria’s sovereign-risk spread has dropped to its lowest level in January 2020. This erases the premium accumulated over the course of the pandemic, and the economic strains that followed.
Capitalization of the banking sector and market response
The Central Bank of Nigeria (CBN), in March 2024, increased the minimum capital threshold by tenfold. Retained earnings were excluded from the qualifying capital. This forced major lenders to turn to the stock market to raise additional funds to meet the new requirements before the 2026 deadline.
Since GTCO’s announcement, the banking group, with a market cap of N1.85 trillion has increased its funding. In the first phase, it raised N209 billion (19459010). Zenith Bank, which raised N350.4 billion via a rights offer and public offering on January 27, followed suit. Other financial institutions have also raised funding, pushing the total over N1 trillion.
According to two market analysts, the rally in banking shares is also fuelled by expectations of increased profitability and stability in this sector. With more capital, banks can expand lending and improve balance sheets.
Azeez Lawal is the managing director of TrustBanc Asset Management Limited. He said that “the banking stocks will continue to remain steady.” “But we won’t see growth in the banking stocks until they release their auditored financial statements, and announce dividends.” January is a month of increased activity on the stock market, which suggests that the growth observed may not reflect market fundamentals.
