Investing in banking shares has become a hot topic in Nigeria, as banks scramble to meet the new capital requirements set by the Central Bank of Nigeria. With 26 banks actively seeking to raise funds in the capital markets, investors have a plethora of options to choose from. However, before diving into the world of banking shares, there are key factors to consider and pitfalls to avoid to make informed investment decisions.
The recent directive issued by the Central Bank of Nigeria mandated banks to shore up their minimum capital base, with different capital requirements for banks based on their authorisation levels. This move is aimed at strengthening the financial stability and resilience of the banking sector, ultimately contributing to a more stable economic environment. Banks have until March 31, 2026, to meet the new capital requirements through various means such as raising additional capital, mergers and acquisitions, or license changes.
Several major banks are already on course to raise significant amounts of capital in the market. Zenith Bank, Fidelity Bank, Access Holdings, Guaranty Trust Holding Company, and FCMB Group are among the banks seeking to raise billions of naira to meet the new capitalisation mandate. These banks are employing various strategies to attract investors, including public offers and share issuances.
When considering investing in banking shares, it is crucial for investors to carefully evaluate their options and make informed decisions. Financial experts advise potential investors to exercise patience and thoroughly assess various indices and metrics before committing to an investment. Factors such as capital adequacy ratios, asset quality, profitability metrics, dividend policies, funding sources, management quality, market position, and competitive advantages should all be taken into account.
One pitfall to avoid is investing heavily in banks that are likely to be involved in mergers and acquisitions, as these activities can introduce uncertainties and risks that may affect investor returns. Monitoring the broader economic environment, including interest rates, inflation, and economic growth, is also essential as these factors can impact the banking sector’s performance during recapitalisation.
Prof Segun Ajibola, former President of the Chartered Institute of Bankers of Nigeria, recommends investing in tier-one banks for their stability and track record of strong performance. He advises investors to look at the ownership structure, performance history, and corporate governance culture of banks before making investment decisions. Charles Sanni, CEO of Cowry Treasurers Limited, emphasises the importance of value-based investing, focusing on earnings per shareholder and dividends per shareholder in the past period.
In conclusion, investing in banking shares can be a lucrative opportunity for investors, but it requires careful consideration and due diligence. By evaluating key factors and avoiding common pitfalls, investors can make informed decisions that align with their financial goals and risk tolerance. Seeking advice from professionals and staying informed about market trends and regulatory changes can help investors navigate the dynamic landscape of banking investments effectively.
