Tayo Busayo, Abuja
DAILY COURIER - FBN Holdings Plc (FBNH), one of Nigeria's leading financial institutions, has officially launched a rights issue offering aimed at raising a significant N149.56 billion. The bank is offering 5,982,548,799 ordinary shares at N25.00 per share in a bid to bolster its capital position and accelerate its strategic initiatives. This move, which reflects the bank’s response to regulatory requirements, aims to position FBNH for sustained growth in an increasingly competitive banking landscape.
The rights issue gives existing shareholders the opportunity to purchase additional shares in the bank, with an entitlement of one new share for every six shares held as of October 18, 2024. The offer price of N25.00 per share is notably below the year’s average share price of N25.75, and significantly lower than the 52-week high of N43.95, recorded in March 2024. This presents an attractive entry point for shareholders, offering a potential upside if market conditions remain favorable.
The rights issue has already seen positive market traction. As of November 18, 2024, FBNH’s share price closed 9.6% above the issue price, reflecting investor confidence in the bank’s strategy and growth prospects.
The bank has outlined a clear plan for deploying the proceeds from the rights issue to address key areas of its operations. A major focus of the capital raise is improving the Capital Adequacy Ratio (CAR) of First Bank of Nigeria Limited, FBN Holdings’ flagship subsidiary. A total of N103.12 billion (68.95%) will be allocated to this effort, with N77.34 billion earmarked for corporate lending and N25.78 billion for the retail segment. This move is critical as it aims to strengthen the bank's buffer against financial shocks and ensure compliance with the Central Bank of Nigeria's (CBN) regulatory requirements.
As of mid-2024, FBN Holdings’ CAR stood at 17.75%. With the bank operating in a high-risk environment characterized by inflationary pressures and currency fluctuations, the strengthening of its CAR is essential to maintaining stability and supporting ongoing growth.
A key pillar of FBN Holdings’ strategy is expanding its lending activities. The bank has already experienced remarkable growth in this area, with loans and advances rising by 72% year-on-year to N8.61 trillion in 2023. By September 2024, this figure had surged to N12.73 trillion. As a result, interest income for the first nine months of 2024 increased by 165%, totaling N1.633 trillion, with 67% of this income derived from loans and advances.
However, the rapid expansion of the loan portfolio brings with it heightened credit risk, reflected in a 35% increase in the cost of risk, which rose to 2.70% in the same period. Effective management of credit exposure will be crucial to safeguarding shareholder value and maintaining profitability.
In addition to strengthening its domestic operations, FBN Holdings is also looking to diversify its revenue base. The bank has allocated N29.46 billion (19.7%) of the proceeds to expanding its international footprint. This move aims to mitigate risks tied to the volatile Nigerian economy, including currency devaluation and fluctuating commodity prices, by providing stable income streams from global operations.
Despite the promising outlook, the rights issue comes with its share of challenges. The expanded equity base, which will rise to 41.88 billion shares, may temporarily put downward pressure on the share price as the market adjusts. However, FBN Holdings’ track record of consistent profitability and growth suggests that the long-term outlook remains positive.
Analysts project that if the bank continues its current earnings trajectory, its market valuation could exceed N1 trillion, driven by effective utilization of the rights issue proceeds. In particular, the bank’s focus on boosting its lending capacity, fortifying international expansion, and investing in digital infrastructure positions it well to maintain a competitive edge in the financial sector.
However, there is a risk that the increased lending activities may lead to a higher rate of non-performing loans (NPLs), which could potentially reduce short-term profitability and affect the returns from the rights issue. With the growing exposure to credit risk, higher provisions for NPLs may be necessary, which could weigh on the bank’s performance in the near future.
FBN Holdings’ N149.56 billion rights issue represents a critical step in the bank’s strategy to solidify its position in Nigeria’s competitive financial sector. By addressing capital adequacy, expanding its lending activities, and diversifying revenue streams through international operations, the bank is positioning itself for long-term growth and resilience.
For shareholders, the rights issue presents an opportunity to acquire shares at a discounted price, with the potential for future gains as the bank strengthens its market position. However, careful attention will be needed to manage the associated risks, particularly in relation to credit exposure, as the bank continues its lending expansion.
Overall, the rights issue is not just a financial maneuver but a strategic roadmap for sustainable growth in a challenging economic environment. If FBN Holdings can effectively manage its risks and continue to capitalize on its growth opportunities, it is well-positioned to maintain its leadership in the Nigerian banking sector and deliver long-term value to its shareholders.
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