When you try to open the restroom door and you’re unable to open it, it means someone is in there using it.
My fellow Nigerians, please stop wrestling the door.
Should you consider investing in the rights issue being marketed by the banks?
Note: This is a long read.
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There are many ways to answer this question, and it depends on what matters to each individual as an investor. The whole concept of bank recapitalisation has been well documented elsewhere (The Big Four firms have publications on the subject). According to its circular, the Central Bank of Nigeria (CBN) stated that the rationale behind the recapitalisation was to position banks with sufficient capital to power a $1 trillion economy.
To start with, I don’t think that argument holds. Others may have a different view, but I don’t believe you need to instruct banks to acquire funds to lend to businesses for economic growth. In my opinion, banks will – without being told – seek capital for themselves when there is strong momentum in the business environment.
When you look at the banks’ balance sheets, you realise that the loan book as a percentage of total assets is between 30%-35%. The remainder is held in investment securities, cash, and other assets. Deposits have grown materially over the past five years, but the banks have not yet considered growing their loan book. This suggests to me that there are bigger problems with the economy.
But that is by the way.