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FBN Capital predicts increased capital raising for banks in 2015

By on September 23, 2014

FBN Capital Limited has predicted that more banks are likely to raise capital in 2015 as a result of the Central Bank of Nigeria’s (CBN’s) new capital requirement rules, which are likely to come into effect before the end of the year.

In its banking sector report, FBN Capital noted: “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.

It added: “Notwithstanding, we acknowledge that new capital requirement rules (already announced) which are likely to come into effect over the next 6-9 months will put pressure on banks to raise additional capital, including tier-1.”

Following Diamond’s recently completed rights issue; Access Bank is also expected to float a rights issue before the end of the year.

According to the report, between January and August 2014, Nigerian banks raised a total of close to N340 billion ($2.1 billion) similar to the entire amount raised in 2013.

“However, these capital raising exercises were not carried out solely to boost banks’ capital bases for regulatory (compliance) reasons. US dollar funding requirements by customers in many cases led the banks to tap the capital markets,” it stated.

FBN Capital further stated that more banks are expected to come to the market to raise additional funds in the second half of 2014 and 2015.

The report added: “The reason for this capital raising frenzy over the past 18 months and the continuation that is expected in the near to medium term is that as at the start of 2013 (apart from needing to meet borrowers’ demands for loans), banks had begun to feel uncomfortable about the safety gap which existed between their capital adequacy ratios (CARs) and the required minimum ratio of 15 per cent as stipulated by the central bank for banks classified as international banks.

“Despite the pressure on earnings, the macroeconomic environment remains supportive. Oil prices continue to be firm and the naira has been relatively stable.

“Over the 2014 to 2016 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.”
 

[This Day]