Banking stocks surge in Nigeria on central bank recapitalization talks
On Monday, Nigerian bank shares experienced a notable rise as investors responded positively to the announcement that the central bank would require them to strengthen their capital buffers. FBN Holdings Plc led the surge, climbing 10%, the maximum allowed in daily trading on the Nigerian exchange, reaching 22 naira per share. This marked the largest one-day increase for the company in five months.
Despite the market capitalization decreasing by N132 billion to close at N39.04 billion, the benchmark All-Share Index saw a 0.17% appreciation, closing at 71,353.81 points. The market also witnessed increased trading activity, with 746.67 million units traded compared to 582.77 million units the previous Friday. Additionally, the value of trade rose to N5.945 billion compared to N4.27 billion.
“We must make difficult decisions regarding capital adequacy,” Governor Olayemi Cardoso said on Friday. “As the first steps, the central bank will be directing banks to increase their capital,” he told bankers during a dinner speech in the commercial hub of Lagos.
Key Takeaways
Nigeria's largest banks have recorded significant windfall profits attributed to foreign-exchange revaluation gains, a result of the more than 40% devaluation of the naira against the dollar. Simultaneously, some of the country's major corporations have incurred losses due to higher interest rates on dollar-denominated loans. This has sparked concerns that non-performing loans, which averaged 4.1% in June, could see an increase. To address potential risks, the central bank directed lenders in September to build capital buffers using their foreign currency revaluation gains. The average capital adequacy ratio for Nigerian banks was 11.2% in June, with the regulatory requirement set at 10% or 15% for lenders with international operations. This move aims to strengthen the financial resilience of banks amid the evolving economic landscape.
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