Why FCMB says it wants to borrow N15 billion from “Retail Investors”

First City Monument Bank, FCMB has revealed plans to source for between 10 and 15 billion Naira of Tier II capital according to its CEO Ladi Balogun.

The bank currently has a capital adequacy ratio (CAR) of 14.8%, 0.2% less than the CBN regulatory required limit of 15%. Bank’s with CAR less than approved limits are required to raise capital as well as stop paying dividends.

To raise capital, the CEO also mentioned that it will be focussing on pitching retail investors rather than institutional investors whom he thinks will be too expensive.

“For the Tier II we would be looking at anywhere in the range of 10 to 15 billion naira. It’s really going to be targeted at retail because we feel that the rates from institutions will be high,” he told an analysts’ conference call. “We have interest from some depositors who want higher yields.”

By targeting retail investors, the bank appears to be abandoning the preferred route of Institutional investors who are fewer in number and are more financially savvy. Thus, the bank believes that these investors might ask for higher yields (returns) considering how desperate the bank is as well as Nigeria’s economic situation.

Retail investors on the other posse a different challenge as it means the bank will have to get across to more people to raise the sort of capital it requires. The public fund raising market in Nigeria is currently lack luster with investors apprehensive about giving money to banks or indeed any company. Public offers and right issues embarked upon in the past couple years have mostly under performed.

FCMB released its 2016 half year results showing pre-tax profits rose by about 70% to N16.2 billion. This compares to a 78% and 68% decline in profits for full year 2015 and first quarter of 2016 respectively. The second quarter results was boosted mostly by an N18.2 billion windfall from foreign exchange gains. In addition, Mr Balogun intimated Reuters on other strategies by the bank to ensure that capital was increased. These include reducing the growth rate of loans, retaining more profits and using buffers offered by its holding company to ensure that its target was met.

FCMB share price is down 24% year to date and 47% in the last one year. Retail investors might want to be circumspect about any fund raising exercise.

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