FBN Holdings (FBNH) has announced a substantial rights issue to raise N149.56 billion, strategically structured to enhance the capital base of its primary subsidiary, First Bank of Nigeria Limited.
The rights issue which commences on the 4th of November 2024 and ends 12th of December 2024 will involve a sale of 5,982,548,799 Ordinary Shares of 50 kobo each at N25.00 per Share on the basis of 1 new Ordinary Share for every 6 Ordinary Shares held as at the close of business on 18 OCTOBER, 2024
The capital raise aligns with the Central Bank of Nigeria’s (CBN) recapitalization mandate, requiring Nigerian banks to bolster their capital reserves to meet increased regulatory demands and support Nigeria’s complex economic environment.
Here, we explore the specifics of how the raised funds will be allocated and the anticipated impact on FBNH’s 2024 performance, along with its effect on share price appreciation.
Strengthening Capital Adequacy to meet CBN’s mandate
The CBN has recently mandated increased capital requirements for Nigerian banks, pushing institutions to adopt stronger financial buffers to weather economic volatility.
- FBNH states that it will commit a large share of the rights issue proceeds—N103.12 billion (68.95%)—towards improving First Bank’s capital adequacy ratio (CAR).
- FBNH reported a CAR of 17.75% in the first half of the year.
- This move is significant, as an enhanced CAR not only fulfills CBN’s regulatory requirements but also ensures First Bank’s resilience, positioning it to maintain healthy lending practices in an economic climate marked by currency fluctuations and high inflation rates.
- This additional Tier 1 capital will be crucial in fortifying First Bank’s balance sheet, making it more resilient to financial stress.
- This capital boost is particularly timely as the banking sector faces increasing demands for corporate financing, which plays a vital role in Nigeria’s economic development.
Expanding lending across Corporate and Retail segments
In line with its growth strategy, FBNH has earmarked significant capital for expanding lending within First Bank’s corporate and retail business lines.
- The rights circular details that N77.34 billion will be allocated to corporate lending, while N25.78 billion will target the retail segment.
- FBNH currently has total loans and advances of N12.7 trillion as of September 2024
- Corporate lending is expected to focus on industries crucial to Nigeria’s economic diversification, including agriculture, manufacturing, and technology.
- Expanding the retail lending portfolio, meanwhile, aligns with First Bank’s commitment to financial inclusion.
- The Nigerian retail market, characterized by a young population and a low banking penetration rate, offers ample room for growth.
Enhancing digital infrastructure in a competitive market
A notable 9.85% of the capital raised, approximately N14.73 billion, will be directed toward upgrading First Bank’s digital banking infrastructure and automation systems.
- In an era where digital finance is reshaping the banking industry, this investment reflects FBNH’s commitment to staying competitive.
- By investing in advanced digital capabilities, including artificial intelligence (AI), data analytics, and cybersecurity measures, First Bank aims to deliver a seamless, secure, and customer-centric banking experience.
- This shift is particularly important in Nigeria, where a young, tech-savvy population increasingly favors digital banking solutions.
- Improved back-end automation will also reduce overhead costs, allowing First Bank to respond swiftly to market demands and maintain a competitive edge.
Supporting international expansion to diversify revenue
The company’s prospectus also indicates FBN Holdings has allocated N29.46 billion (19.7% of the proceeds) toward expanding its international presence.
- With subsidiaries in West African countries, such as Ghana and Sierra Leone, as well as representative offices in Paris and Beijing, First Bank’s international strategy is poised to capitalize on cross-border opportunities.
- According to the bank, these funds will be deployed over the next 36 months to scale operations in these international markets, further localizing services to meet the unique financial needs of each area.
- By doing so, FBNH not only diversifies its revenue base but also mitigates risks associated with over-reliance on the Nigerian economy, which has shown vulnerability to currency and commodity price fluctuations.
Costs of issuance
Capital raising also attracts significant associated costs and according to the bank it has allocated N2.25 billion (1.5% of the total proceeds) to cover issuance-related costs, including administrative fees and logistics for the rights issue.
- This ensures compliance with regulatory requirements and smooth execution of the issuance process.
- These costs are necessary to facilitate a seamless rights issue process and to meet regulatory compliance requirements.