FSDH Merchant Bank Plans Rights Issue with Shareholders- Bukola Smith, MD
Bukola Smith, FSDH Merchant Bank Limited Managing Director and Chief Executive (CEO) has said the lender would raise capital from rights issue with existing shareholders of the company.
MarketForces Africa reported that six merchant lenders have N230 billion funding to meet new capital requirement. The apex bank in the country recently directed all deposit money banks to increase their capital base amid a drive toward a $1 trillion balance sheet economy.
Before the recapitalisation, merchant banks were required to maintain a minimum paid-up share capital of ₦15 billion. However, Nigeria’s weak local currency has, however, reduced its value in the dollar term.
In the merchant lender segment, FSDH has highest capital funding gap of about N48 billion, according to the group research note for first quarter of 2024.
With N2.4 billion capital base, FSDH is expected to raise additional funds to meet N50 billion capital requirement for Merchant lenders in less than two years.
The last banking recapitalization was executed in 2005, when commercial lenders were required to attain a minimum base of ₦25 billion, which was equivalent to US$189 million.
In dollar terms, this amounts to US$38.75 million as of 2023, an erosion of US$150.25 million in 18 years, FSDH said in a research note.
“A review of the share capital and premium of all merchant banks shows an average share capital of ₦11 billion. According to available financials, there is an industry shortfall of ₦229 billion”, according to FSDH Research.
Compared with its peers, FSDH Merchant Bank has the highest funding gap, would need to raise N47.6 billion to retain its license by the end of the first quarter of 2024, according to the report.
Like their commercial bank counterparts, merchant banks are unable to rely on their substantial retained earnings to cover the funding shortfall due to the restriction on the capital raising exercise to share capital and share premium.
FSDH stated that with none of these banks listed on the Nigerian Exchange, the plausible source of funding could be equity injections via private placement or mergers and acquisitions.
Responding to MarketForces Africa on how the bank plan to survive the recapitalisation programme ending in the first quarter of 2026, Smith said, “We will be doing rights issue from existing shareholders”. CBN Regulation Limits Banks’ Lending to 25% of Every N100 Deposit –Analysts
