Coronation Webinar: Experts Harp On Importance Of Bank Capitalisation, Advantages Of Rights Issue And Opportunities For Investors
Mr. Jibola Odedina, Managing Director/CEO, Coronation Securities Limited
Financial experts who spoke at the Coronation Securities Limited Webinar yesterday highlighted imperatives of bank capitalisation, advantages of Rights Issue and opportunities for investors.
Experts opined that as the Nigerian banking sector continues to evolve, with increasing capitalization and robust financial performance, Rights Issues present a valuable opportunity for investors to participate in the growth of the sector, noting that the strong banking sector is a vital driver of Nigeria’s economic growth and prosperity.
Delivering the keynote during the Webinar themed “Understanding Bank Capitalization: Rights Issue and Opportunities for Investors”, Chief Economist, Securities and Exchange Commission (SEC), Mr. Okey Umeano, spoke elaborately on the importance of Bank capitalization and the advantage of rights issue for investors and why bank may opt for Rights Issue amongst others.
On the importance of Bank capitalization, he said it will enhance their financial strength, lending capacity, risk mitigation and regulatory compliance.
“Capitalisation is a key indicator of a bank’s financial strength, acting as a buffer against potential losses. This instills confidence in depositors, investors, and regulators. It provides a cushion to absorb losses arising from loan defaults or market fluctuations, ensuring the bank’s stability and sustainability.
“Adequate capital allows banks to extend loans to businesses and individuals, promoting economic growth and development.
“Banks are required to maintain a certain level of capital by regulatory authorities to protect the financial system and ensure consumer confidence, ” SEC Chief Economist explained.
According to him, options for banks to raise the required capital include Public Offering, Private Placement, Rights Issues, Merger and Acquisition, Capitalising Dividends and Convertibles.
He said over the years, Rights Issue has been a popular choice for raising equity capital.
On Rights Issue, definition, purpose, and opportunities for investors, he said, “A rights issue is for companies to raise capital by offering existing shareholders the right to buy new shares, often at a discounted price. It allows issuers to strengthen their financial position by raising funding while preserving ownership structure. Rights issue can provide investors with the opportunity to purchase additional shares at a discount and potentially benefit from future growth.”
He listed the reason why a bank may opt for Rights Issue to include lower cost, opportunity to maintain ownership, easier to manage register and option for public offer if Rights Issue is not successful.
“Rights issues are usually less expensive than public offers as costs such as marketing and advertising of the issue is limited to existing shareholders and therefore less expensive. It allows existing investors to maintain their proportionate ownership in the bank. This Is a big consideration where decision makers in the bank have substantial holdings. Compared to pubic offers, rights issues are easier to manage as there are a fewer new investors to add to the register. A bank that does right issues retains the option of making a public offer for any amounts not raised through the right issue,” Mr. Umeano explained.
Advantages of Right Issue for investors, according to him, include potential capital gains, opportunity to maintain ownership, access to undervalued stocks and enhanced financial stability.
“Investors can benefit from the potential capital gains if the bank’s share price rises after the rights issue. A successful rights issue can increase investor confidence, boost the stock price. It allows existing investors to maintain their ownership in the bank. Without participation, their ownership could be diluted. Rights Issues can offer investors an opportunity to acquire shares in bank at a potentially discounted price, especially if the bank’s stock is undervalued. A successful rights issue can strengthen the bank’s financial position, increasing its ability to withstand economic shocks and provide a more secure investment,” Mr. Umeano stated.
Emphasising the need for investors to carefully evaluate banks issuing rights offerings, Mr. Umeano said “This involves assessing the bank’s financial health, its growth trajectory, its growth prospects, and the potential risks and rewards of investing in the rights issue.”
Timing the market, understanding the offering and diversification are the strategies for participating in Rights Issues. “Investors should closely monitor the stock market and identify trends that could influence the rights issue’s success. They need to thoroughly analyse the rights issue prospectus to assess the bank’s financial performance, future prospects, and the pricing of the new hares. Investors should diversify their investment portfolio by participating in rights issues of multiple banks, spreading the risk and potential rewards,” Mr.Umeano added.
Speaking on the Regulatory oversight and investor protection, the Keynote speaker said “The Securities & Exchange Commission (SEC) is, alongside the Central Bank of Nigeria (CBN), playing a crucial role in overseeing this bank recapitalistion and protecting investors. The SEC has issued a framework for this exercise, is monitoring compliance, and will enforce its rules to ensure fairness and investors protection.
“Investor protection mechanisms aim to safeguard investors’ interests in rights issue investments. This includes disclosures, transparency, and investor education. The SEC also monitors utilization of proceeds of the issue.
“Banks are required to provide comprehensive information about their financial performance, capital adequacy, and details of the rights issues in the documents filed with SEC and made available to would-be investors. This transparency helps investors make informed decisions.
“The SEC and other regulatory bodies promote investor education initiatives to raise awareness about rights issues, risks involved, and strategies participations.”
Experts who discussed the theme of the Webinar “Understanding Bank Capitalization: Rights Issue and Opportunities for Investors” during the panel session include Partner at PWC, and Head, Capital Market Accounting Advisory Services for West African Market, Bolanle Adekoya; Head, Financial Institution Rating, Agusto & Co, Ayodinle Olubunmi, emphasized the need for the investors to understand the rudiments of investments.
They noted that financial literacy empowers investors to understand financial concepts that will help them to make informed decisions.
The Experts encouraged investors who are interested in investing in the ongoing recapitalization in the Nigerian Banking Sector, to avail themselves with the services of Financial Management Advisors for proper guidance and advice.
They also called on the regulatory authorities, The Central Bank of Nigeria (CBN); Securities and Exchange Commission (SEC) to ensure the protection of investors interests in the ongoing Banks recapitalization exercise.
Earlier in his opening remarks, the Deputy Chief Executive Officer at Coronation Securities Limited, Olusegun Owadokun, highlighted the rationale behind the Webiner
He said the webinar was designed to exposed participants to valuable insights into the world of bank capitalization and rights issues that will empower investors to make informed decisions and capitalize on emerging opportunities.
According to him, “In the dynamic world of banking and finance, understanding the mechanisms of bank capitalization and the implications of rights issues is crucial for both investors and financial professionals.
“The Coronation Securities Limited Webinar Series is carefully designed to provide relevant insights for both corporate and individual clients. This edition of the webinar will delve into the intricacies of how banks raise capital, the strategic importance of capitalization, and the role rights issues play in strengthening a bank’s financial position.
