Bank stocks outlook seen as positive by analyst due to recapitalization efforts

A financial analyst has made a positive prediction regarding the future of bank stocks, attributing it to the ongoing recapitalization of the banking sector.

This two-year exercise, which began on April 1, 2024, and is set to conclude on March 31, 2026, mandates commercial banks with international, national, and regional licenses to maintain minimum capital amounts of N500 billion, N200 billion, and N50 billion, respectively.

Additionally, the Central Bank of Nigeria (CBN) has also increased the capitalization baseline for merchant banks (N50 billion) and non-interest banks (N20 billion for national and N10 billion for regional).

Ambrose Omordion, a capital market expert, emphasized the significance of the financial services sector, particularly the banking sector, on the Nigerian Exchange Limited (NGX).

During a television program in Lagos, he urged the CBN to allow banks to distribute dividends to investors for the year 2023.

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Omordion highlighted that based on strong fundamentals, banking stocks have consistently performed well, with notable performers including FBN Holdings, UBA Plc, Guaranty Trust Bank, Access Bank, and Zenith Bank (FUGAZ).

He also expressed optimism in the results of Fidelity, Wema, Jaiz, and Sterling Banks, considering them as promising stocks.

Omordion stressed that if banks refrain from paying dividends for the year 2023, it may negatively impact the planned recapitalization exercise.

This is because the same investors and shareholders the banks rely on for fresh capital injection may perceive it as a discouraging signal.

He further emphasized that most banks have the financial stability to pay dividends, citing Fidelity as an example, which has consistently paid dividends to its shareholders for 15 years.

Omordion concluded that allowing banks to reward their shareholders through dividend payments is crucial for a successful recapitalization process, as preventing such payments would send the wrong message to investors.