The Nigerian banking sector is currently undergoing a recapitalization exercise, mandated by the Central Bank of Nigeria (CBN), requiring banks to increase their minimum capital base. While this move aims to strengthen the financial system, the accompanying capital verification process implemented by the CBN has sparked concerns among market experts, who fear it could lead to investor apathy and deter future capital raising efforts. The verification process, designed to scrutinize the source of funds and the suitability of investors, has been criticized for its length and potential to discourage both domestic and foreign investors.
The core of the concern lies in the extended timeframe for share allotment following capital raising exercises. Experts point to recent experiences where the verification process caused significant delays, sometimes extending several months beyond the closure of application lists. This protracted period creates uncertainty for investors, locks up their funds without a clear outcome, and raises questions about the opportunity cost of their investments. This uncertainty is exacerbated by the lack of transparency and communication regarding the verification timeline. Investors are left in the dark about the status of their applications and the potential impact on corporate actions, such as dividends and bonus issues. This prolonged waiting period can erode investor confidence and make them hesitant to participate in future offerings.
The protracted verification process also poses a challenge for banks seeking to meet the CBN’s recapitalization deadlines. The delays can disrupt their capital raising plans and force them to explore alternative avenues, such as mergers and acquisitions, which may not be as strategically advantageous. Furthermore, the cumbersome process adds another layer of complexity and cost to capital raising exercises, potentially deterring some banks from accessing the capital market altogether. This could limit the growth and expansion of the banking sector, ultimately hindering its ability to contribute effectively to the Nigerian economy.
While acknowledging the importance of capital verification in ensuring the integrity of the banking system, market stakeholders suggest a more streamlined and efficient approach. They argue that the current process, marked by lengthy delays and a lack of communication, creates unnecessary hurdles for investors and banks alike. Improved transparency and communication could significantly mitigate investor concerns. Providing a clear timeline for the verification process and keeping investors informed about the status of their applications would alleviate uncertainty and build trust. Furthermore, a more efficient verification system would expedite the share allotment process, reducing the time investors’ funds are tied up and allowing banks to access the capital they need more quickly.
Several banks have already completed their capital raising exercises and undergone the CBN’s verification process. Access Holdings and FCMB Group are among the first to announce their share allotments following the completion of the verification process. While the details of their respective offerings vary, both cases underscore the impact of the verification process on the timeline and outcome of capital raising. The rejection of certain applications due to non-compliance or disqualification by the CBN further highlights the importance of transparency and clear communication to investors about the requirements and potential outcomes of the process.
Despite the challenges and concerns surrounding the capital verification process, the ongoing recapitalization exercise is expected to continue. FBN Holdings and United Bank for Africa are currently finalizing their rights issues, while Stanbic IBTC Holdings is expected to enter the market in the near future. The experiences of these banks, and the feedback from market participants, will be crucial in shaping the future of capital verification in Nigeria. A more streamlined, transparent, and efficient process will be essential in attracting and retaining investor confidence, ensuring the long-term health and stability of the Nigerian banking sector. The CBN’s responsiveness to these concerns will play a significant role in determining the success of the recapitalization exercise and the future development of the Nigerian capital market.
