Nigerian banks have been more constrained by the CBN-imposed loan-to-deposit ratio (LDR) of 65% and cash reserve ratio (CRR) of 32.5% than equity capital.
The banks have mainly relied on reserves to strengthen their capital base.
However, the recent advisory around whether or not to raise banks’ capitalization has led to a few banks proposing to raise their issued share capital.
One such bank is FBN Holding (FBNH), which aims to increase its share capital from N17.95bn to N22.43bn by creating an additional 8.97bn ordinary shares of 50 Kobo each through a Rights Issue.
While the capital raise could signal positive growth prospects for FBNH, the HoldCo’s existing shareholders might be bothered about potential dilution and other risks to their equity stakes.
Nevertheless, despite the possibility of a fall in share price based on the likely markdown caused by the capital raise, FBNH saw a +1.8% price gain to N21.55 per share on Tuesday but a -4.87% drop to N20.50 per share on Wednesday.
Analysts believe this may be related to the prospective Rights Issue, which would allow existing shareholders to subscribe to the newly issued shares first to maintain their relative ownership status in the financial Holdco.
The Rights Issue and Q2 2023 earnings release may have shored up investors’ confidence.
However, analysts cautioned that the pre-emptive Rights waiver on undersubscribed shares could effectively dilute the shareholders’ stake.
In this wise, the 235% growth in EPS to N5.19 in H1 2023 from N1.55 in H1 2022 could be at risk of major dilution.
