Banking stocks in Nigeria are bracing for further declines in share prices as the prospect of upcoming rights issues looms large. The FUGAZ stocks, encompassing major Nigerian banks like FBNH, UBA, GTCO, Access Corporation, and Zenith Bank, have entered a bearish phase as investors anticipate rights issues.
The recent downturn in Nigerian banking stocks can be attributed to the Central Bank’s directive on banking recapitalization. This directive, which mandates an increase in minimum share capital, has sparked expectations of further declines in share prices.
Financial analysts explain that the decline in share prices typically associated with rights issues stems from the offer of shares at prices below market rates to entice existing shareholders. This strategy increases the supply of shares, exerting downward pressure on prices.
The Banking All Share Index, which monitors some of the most capitalized bank stocks on the Nigerian Exchange, has experienced an 18% quarter-to-date decrease, contrasting sharply with the All-Share Index’s 6% increase over the same period. Year-to-date, Nigerian banking stocks have fallen by 6.8%, while the NGX All Share Index has risen by 31.37%.
Tier-one bank stocks, including FBNH, UBA, GTCO, Access Corporation, and Zenith Bank (FUGAZ), have witnessed significant declines in share prices amid impending rights issues. For instance, FBNH’s share price has dropped from N43 to N25, with expectations that it could fall further to its year low of around N18. Access Corporation, UBA, Zenith Bank, and GTCO have all seen similar declines in share prices.
Analysts suggest that the decline in share prices accompanying rights issues is a common occurrence, as existing shareholders are offered shares at prices below current market values to encourage subscription. This increase in the supply of shares, coupled with potential divestments by shareholders, contributes to the downward pressure on share prices.
While the outlook for banking stocks may seem uncertain in the short term due to the impending rights issues, analysts highlight unique investment opportunities for medium-term investors. Banks stand to benefit from central bank policies that enhance earnings from foreign exchange gains and income from risk-free government securities. However, challenges exist in the longer term, including increased outstanding shares and a shift from super profits to reliance on income from riskier lending activities.
In conclusion, while Nigerian banking stocks face near-term challenges amid rights issues, they also present opportunities for investors looking at medium-term prospects.
