Access Bank is the latest Nigerian lender seeking to boost its capital levels as the bank’s management is on the road in Lagos and Abuja meeting domestic investors who may participate in the offer.

“We understand this will be via a rights issue of NGN60-70 billion ($370-430 million) planned for 4Q14. This represents 26.31 percent of current market cap and 25-29 percent of FY13 equity. The stock is trading at 0.9x FY13 book,” said Adesoji Solanke, SSA banking analyst at Renaissance Capital.

“We think the tier 1 raising decision may be a proactive step by management to bolster its core capital ratio under Basel 2 to give it more headroom to grow,” Solanke said.

A transition to Basel requirements by Nigerian banks is expected to hit dividend payouts as lenders move to conserve and boost capital.

The Central Bank of Nigeria (CBN) published two circulars in December 2013 indicating that it expected banks to begin adopting elements of Basel II and III relating to market and operational risk (by June 2014) when computing capital adequacy ratios (CAR).

After assessing the implications of the changes on bank’s capital levels and feedback, the CBN extended the adoption of the rules to September 2014.

Rencap estimates Access’ core CAR under Basel 2 at 14.5 percent versus an estimated core CAR minimum requirement of 12.25 percent, including 1 percent capital buffer for Strategically Important Banks (SIBs), which implies a 225ppts headroom.

Banks with international operations are required by the CBN to meet a minimum CAR of 15 percent and 10 percent for those with strictly Nigerian operations.

Global regulators are weighing tougher constraints on how banks measure the risk of losses on their investments in a bid to prevent them from downplaying the capital they need to guard against insolvency.

Nigerian banks have been accessing the capital markets to shore up their capital base. Stanbic IBTC had announced it was raising N30 billion in capital, while Diamond has initiated a N50-billion rights issue.

International standards set by the Basel Committee demand that banks meet minimum capital requirements, measured as a percentage of their assets. The amount of capital that must be held is linked to the riskiness of the assets.

The total assets of Nigerian banks were about N22.64 trillion ($138 billion) at the end of last year, data compiled by BusinessDay show.

Most Nigerian banks’ CARs are now below 20 percent, according to Solanke.

The Nigerian Stock Exchange (NSE) Banking Index, which tracks the nation’s 10 biggest banks by market value, has lost -6.83 percent year to date (August 27), compared with the +0.5 percent rise in the NSE All-Share Index.

The cumulative net income for 14 lenders that have released HY 2014 results fell -1.65 percent to N246.7 billion from N250.8 billion in the earlier 2013 period.

“We expect tier 1 capital raisings to pick up in the sector as banks gear up for the implementation of the Basel 2/3 guidelines by October 2014. Management may be trying to be ahead of the curve by raising tier 1 capital now before the markets get crowded out and early 2015 election jitters kick in. First Bank and UBA are the big banks we think could also be considering a tier 1 capital raise in the near term, as well as Skye Bank in 2015,” said Solanke.

Businessday