A financial expert and founder of KSBC Knowledge Resources Limited, Mr. Chika Mbonu, has advised Nigerian investors not to venture into the ongoing banking public offers if they are not willing and ready to wait for at least five years.
Mbonu advised while speaking as a panellist during the Nairametrics industry outlook webinar with the theme, ‘Banking Public Offers: Buy, Sell, or Hold’? held on Saturday.
According to him, Nigerian banks have a huge prospect for growth, and only long-term investors could benefit from the growth and get better returns on their investments.
“If you don’t have that appetite to invest in a long-term, at least a five-year horizon, don’t step in. It’s only occasionally that some things happen overnight and then prices move up. Give yourself a five-year horizon minimum to enable you to get a capital appreciation and the dividends required,” he said.
The 2005 experience
While noting that it would be difficult to convince some people to invest in banking stocks again because of the bad experience they had when they invested in 2005 banking consolidation offers, Mbonu said many got their fingers burnt due to lack of education.
Emphasizing the need for investor education, Mbonu said a lot of Nigerians bought bank shares in 2005 without a basic understanding of how the stock market works.
According to him, many of them were expecting quick gains, when indeed, the investment was supposed to be for the long-term.
“I was in active day-to-day banking then and I knew a lot of my brothers in Alaba, Idumota, all suspended their trading and used their capitals to buy shares.
“And every morning, all of them became stockbrokers; ‘has Zenith moved, has GTB moved’? People were watching the price movement day today, thinking that was how the stock market works,” he said.
Nigerian banks’ growth potential
Citing several areas yet to be served by Nigerian banks, Mbonu said the new capital raise would enable them to move into those areas and achieve growth, which would eventually translate to gains for their investors.
While reiterating that there is so much growth potential for the Nigerian banks, he said investors can bet on them for long-term returns. He also pointed out that a lot of issues that characterised the 2005 consolidation have been addressed, thus there is a guarantee that the banks would do well with more capital this time.
According to Mbonu, the corporate governance of Nigerian banks has improved and their regulatory monitoring has increased. He added that their business models have also improved.
“A lot of things the problems we had in 2005 that made many people lose money are no longer existing. You know, banks are better supervised; all that bubble capital that happened in 2005 will not exist, this time around. So, you know, the conditions are right for the investors to commit to the banking industry,” he said.
Beyond the general potential of the banks, Mbonu advised investors to also do their due diligence on the banks they want to invest in by looking at how the bank is being run, its track record; and what it is currently doing.
What you should know
In March 2024, the Central Bank of Nigeria (CBN) announced a recapitalization program for banks in Nigeria to increase their capital requirements and strengthen their asset base.
The program is intended to help banks take on greater risks, increase liquidity, and broaden their loss-bearing capabilities. It’s also expected to have a broader impact on the Nigerian economy and financial industry.
The recapitalization program requires banks to:
- Increase their minimum paid-in common equity capital
- Comply with the Capital Adequacy Ratio (CAR) relevant to their license category
- Raise approximately $4 billion in total capital by 2024
- The program also allows banks to upgrade or downgrade their license authorization, or merge and acquire other banks. The CBN has given banks 24 months to raise the required funds, with the policy effective from April 1, 2026.
- The program will require coordinated efforts across the entire financial services spectrum, including regulators, non-bank financial service providers, and the government. It will also be important to address structural issues such as poor market information, weak loan recovery frameworks, and limited access to credit for SMEs.
To meet up with these requirements, some of the banks have launched public offers to raise funds. These include Fidelity Bank, GTCO, and Zenith Bank.
