By Francois Ajuonuma, Clement Adeyi, Anthony Otaru, Ben Adoga, Cajetan Mmuta, and David Lawani
With barely 20 months to the new Central Bank of Nigeria (CBN) recapitalisation policy deadline, financial institutions have embarked on a massive fund drive through public, right issue, and placement offers to meet their monetary requirements.
The CBN had in March 2024 raised the capital requirement of banks, giving them two years to meet the new capital base or explore other options such as mergers/acquisitions or downgrade of banking license.
According to the new requirement, commercial banks with international licenses must have a capital base of N500bn. In contrast, their national and regional counterparts must have a capital base of N200bn and N50bn respectively.
Similarly, the Security and Exchange Commission (SEC) released its framework to support the apex bank’s recapitalisation programme.
The framework outlined the guidelines and procedures banks are required to follow to raise capital through rights issues, private placement, or other approved methods between 2024 and 2026.
However, findings by ThisNigeria over the weekend indicated that for some reason, potential investors have expressed mixed feelings over the ongoing public, right issue and placement offers by financial institutions.
While some have hinged their claims on paltry dividends that they have received in the past from financial institutions and other listed companies, others have said the harsh economic reality in the country economy has caused hunger, poverty, starvation, naira devaluation, fuel hikes and all indices of a failed state may hamper the smooth raising of funds.
*Bank owners control majority shares through family, proxies
Besides, there is also the fear that those who own majority shareholding in these financial institutions may continue to dominate the space. There are claims that some individuals own more than 51 per cent shares in some banks, especially through proxies, a situation that is making the situation look like a family business.
ThisNigeria learnt that banking stocks listed on the Nigeria Exchange Limited lost about N1.62trn in their market capitalisation since the apex bank directed the banks in the country to recapitalise.
Similarly, non-interest banks with national and regional authorisations are expected to increase their capital to N20bn and N10bn respectively, according to the CBN circular stressing that only the share capital and share premium items on the shareholder’s fund portion of the balance sheet will be recognized in this particular round of recapitalization.
Stakeholders say to meet the new capital base, the entire banking sector will need to raise about N3.97trn. At the moment, no fewer than 13 banking stocks listed on the Nigerian Exchange Limited have already shed about N1.62trn from their combined market capitalisation.
Some of the banking stocks listed on the SEC website include,-FMB Holdings, Access Holdings, Guaranty Trust holding Company, United Bank for Africa, Zenith Bank, Wema Bank, Fidelity Bank, FCMB Group, Stanbic IBTC Holdings, Sterling Financial holding Company, Ecobank Transnational Incorporated, Unity Bank and non-interest Jaiz Bank.
As of the end of March 2024 when the regulator announced the fresh recapitalisation directive, the combined market capitalisation of the banking stock was N8.08trn with GTCO and Zenith Bank taking the lead position.
Similarly, on SEC’s website unclaimed dividends have tripled from N60bn over a decade ago to over N190bn as of August 2023. The development, which is believed to be a result of the inability of shareholders to have access to their dividends, might also discourage new investors from buying shares in the sector.
In an interview with ThisNigeria, pioneer professor of Capital Market and President of the Capital Market Academy in Nigeria, Uche Uwaleke, said that nobody has up to 41 per cent shareholding in any of the banks because there’s a limit of bulk share one should have.
He stressed, “The highest we have witnessed so far is that of the Zenith Bank and Access Bank where major shareholders got between 11 and 12 per cent- the CBN does not even allow it.”
On why the banks are having difficulties in raising required funds, Uwaleke said it is because of the bad state of the economy and the fact that almost all banks are coming out at the same time to look for funds/or share subscriptions.
“Supply of shares is now more, this will make the price to crash, most of them are now looking at raising money from existing shareholders, right issue, they put a price to say, okay, come and pay such amount but before the time would end, the price of the share would have fallen below the price that was offered so no more opportunity for them.
“When banks want to sell to shareholders, they give them at a discount for existing ones but this is not succeeding because of drops in prices as many shareholders are presently losing interest. Banking shares are now dropping, they may not be able to meet the requirements because a lot of them came out at the same time looking for funds in an economy that is challenged as a result of an increase in interest rate floating of the naira and removal of fuel subsidy, all of which has led to high inflation. With these challenges, this is not the period you ask somebody to bring money.
“It is a period of uncertainty where investors sit on the fence because they are cautious to watch the situation of things before they invest, banks are coming at the same time and supply is high, so prices would fall, people don’t invest in times of uncertainty because investment is full of risks”, he said.
However, one of the brokers with Final Finance Limited, Mr Gregory Emeh, attributed the prevailing poor share subscription levels to the wrong application of the fiscal and monetary policy by the Federal Government on the economy.
Emeh said, “The recapitalisation timing set by the CBN is not favourable to would-be investors because of the Federal Government’s fiscal and monetary policies. The government has removed fuel subsidy which has led to the high cost of petrol now selling for between N700 and N1000 per litre in some places. It has equally floated the naira where N1,650 was exchanged for $1. All these wrong policies have led to the high inflation that is crippling the people’s ability to buy shares.
“People now use their meagre resources to feed not to invest, I think the CBN has failed to study the situation as it has equally suffocated the investors by jacking the recapitalisation threshold to a whooping N500bn, this is too high.
“We can also see that the same government is over-taxing the people including the investors especially, in the areas of increased electricity tariff, all of these have robbed investors extra money to buy shares.”
The broker gave the assurances that given the long timeframe, there was the tendency that some of the banks may meet up the recapitalisation by going into merger and acquisition at best.
He explained that some shareholders put themselves in a tight corner and make it impossible to get their dividends when due.
“Some buy shares but fail to make adequate arrangements for easy payment of dividends, deaths also make it impossible for claims as the deceased next-of-kin may not be aware that the dead has shares or not. Many also fall victim to unclaimed dividends because they refuse to contact a professional broker who gives adequate advice on the best companies to put their investment in.
“Some banks are responsible for the negative perception of buying shares. A particular bank (name withheld) has promised to empower its shareholders to become millionaires, it advised not to consume all their dividends but to plough back some part and invest more in the bank for the latter day’s fortune.
“The mistake some banks make is that they make their right issue almost higher than what obtains in the floor at the foreign exchange market, under normal circumstances, people can buy the right issue at say N7.75kobo, whereas, at the floor of the exchange, same units could be bought at 18kobo or 19kobo per unit.
“So, those who have enough money prefer to buy shares directly from the floor at the exchange, also remember that you have to wait longer for your shares to mature for dividends if you subscribe to the right issue.”
Also speaking, a Professor of Economics at the University of Uyo, Akwa Ibom State, Akpan Ekpo Akpan, told ThisNigeria that the comatose state of the economy is not encouraging people to buy shares except for those who have enough cash at their disposals.
According to the erudite professor, “The success of the recapitalisation may be influenced by merger and acquisition of some of the banks which may eventually lead to unemployment in the sector.”
He appealed to the government to give the banks more time to recapitalise.
*Allegations of insider dealings rife
A shareholder, Stella Oshoema, said while some backs keep to their oats of transparency and accountability by promptly paying shareholders’ dividends as at when due, a few others give unethical reasons for not declaring dividends, this is what is holding the people back from acquiring more shares.
Another shareholder, Mr Adedeji Komolafe, said that ownership of the banks and their families who have over five to seven per cent share more dividends than other shareholders.
He added, “Their dividends run in millions and billions to the detriment of others, but I must say I have no regrets buying shares in my bank.”
A distinguished scholar and renowned Professor of Economics, Sheriffdeen Tella, said unlike before, people now watch the market closely before they buy shares.
He said, “This time is unlike before when the shares secondary market is frozen, the current form is to allow people to buy shares on offer or go to the market, so people found out in many cases that the share prices are cheaper in the secondary market than the one on offer.
“As rational investors, they are not buying on offer but in the market in that process, they watch before buying and that takes time to make decisions on this process.”
Narrating his ugly experience, a senior lawyer, Chibunna Okoli-Akirika, lamented how his 40, 000 units of shares he subscribed to from a commercial bank went down the drain without a dime as a dividend after 25 years of the investment.
He said, “I bought the shares of the then Burbank that later metamorphosed Skye Bank that eventually metamorphosed into Main Stream Bank and presently the Polaris Bank. From that time till date, I have not received any information, any molecule, any iota no matter how time regarding the shares I bought from the bank,” he said.
He, however, attributed the massive losses and failure of the shares to widespread ignorance.
Okoli-Akirika said, “Banks or companies may advertise for purchase of shares, but because of our illiteracy and unexposed nature, even among the educated ones, we don’t even know how to follow, monitor, and manage the so-called shares.
“I think what is important is that the government and the regulatory agencies should endeavour to have an effective way to educate the Nigeria citizens regarding the purchase, the management, and handling of shares purchased either in banks or other corporate entities.”
*I lost my 10,000 units of share in 1998 due to bank liquidation– Retired soldier
A retired soldier, Daniel Abbah, while narrating his bitter experiences, recalled that he bought 10,000 units of shares through All States Trust Bank in 1998, but lost the money because the bank later went moribund.
According to him, he later heard that the shares crashed at the Stock Market and he was not in the position to follow up to access his money due to the nature of his job as he was always engaged.
Abbah said he bought the share as a part of his preparation for retirement life in order not to suffer when he wouldn’t be earning a salary anymore.
He added that he planned to leverage the share to supplement his gratuity and whenever he started earning his pension, he wouldn’t face many financial constraints, but unfortunately, he lost the money to liquidation of the bank.
Abbah also explained that he couldn’t recover the share because the procedures were cumbersome so much that he could no longer follow up until he lost contact with his account officer and could not access the money up till now.
He said, “I bought my share through All States Trust Bank. That was around 1998. It was N10,000 which was a lot of money in those days. After buying the share, I was banking on it to yield interest so I could resell it and get more interest. But unfortunately, I lost the money when All States Trust Bank went moribund.
“I planned to use the share to supplement my gratuity and whenever I start earning my pension so that I wouldn’t face much financial constraints. But unfortunately, I lost the money due to the liquidation of the bank. Till today, I cannot access the money.
“Another painful aspect is that I didn’t know who to hold responsible when the bank collapsed. It’s been long now. We are talking about 26 years ago. Who can I hold responsible now to recover the money?”
*Sold my shares out of anger, frustration- Okeomu
A former banker and economist, Peter Okeomu, said he suffered untold hardship and frustration shortly when the stock market crashed which led to his unable to recover the worth of some of the shares that he had in the then Intercontinental Bank before it was acquired by Access Bank.
He said, “I believe they manipulated the system. Because I lost share worth 50,000 units as of that time which was valued at about N2.7m. When they sold the bank to Access Bank, the transaction ratio was not favourable to most of us. I had 50,000 units of shares in Intercontinental Bank, and when they did that transaction, I do not think I was able to get up to 1000 units.
“What I know on the issue of shares in the stock market is that, for somebody to leave two million at that time, you know what it means. If there is any information that they have that can lead us to recover our money, I will support it.”
*Companies not compelled by law to pay dividends to their shareholders, ex-NGX spokesperson, Tokede
This is according to a former spokesperson and Senior Manager of Corporate Affairs of the Nigeria Stock Exchange, Wole Tokede.
Tokede, also a veteran journalist and publisher of business247news.com, explained that shareholders, who are unable to receive any bonus share or dividend from a performance company can go to the stock market, and approach a broker to sell the shares to a company doing well.
“There is nothing that compels a company to pay dividends. Is not compulsory. They can make money and not pay one naira to shareholders, they have that privilege.
“The company can do well and still not pay dividends and then they will tell you that they plug back the money they make into the business,” he said.
