The banking sector in Nigeria had a robust start to the year, with the NGX Banking Index showing a significant surge of 9.76% in January, outperforming the broader market. This positive trend was driven by increased investor confidence due to the ongoing recapitalization exercise, which has resulted in banks raising a total of N1.7 trillion in new equity capital in the initial phase.
The Securities and Exchange Commission confirmed the strong participation from investors, supporting the banking sector’s impressive performance fueled by the high demand for financial stocks. The NGX Banking Index’s year-to-date gain of 9.76% overshadowed the 1.53% rise of the NGX All-Share Index during the same period.
Wema Bank Plc led the gainers with a 25.8% increase, followed by FCMB Group Plc with a 17.55% rise and Stanbic IBTC Holdings with an 11.71% gain. These gains were backed by solid financial results, as reflected in the significant profit growth reported by the mentioned banks in their full-year 2024 earnings.
The Central Bank of Nigeria’s directive on recapitalization, requiring banks to meet new minimum capital requirements by March 2026, has been a key driver of market sentiment. Three banks have already met the new capital requirements, while seven others raised funds through public offers in 2024, with many experiencing oversubscriptions.
Experts in the industry have noted the strong investor appetite for banking stocks, attributing the market performance to this sentiment. The current progress in raising funds indicates that banks are on track to meet the recapitalization deadline without resorting to forced mergers, unlike what was seen in 2004.
Analysts foresee continued outperformance of the NGX Banking Index compared to the broader market, as more banks disclose their financial results and recapitalization strategies. The sector’s fundamentals are deemed strong, with expectations of sustaining the growth momentum, resulting in stronger, more profitable banks that can offer higher shareholder returns.
The ongoing recapitalization drive is predicted to enhance market liquidity, boost financial stability, and support long-term growth in Nigeria’s banking sector.