Expert Urges Investors To Hold Out For Long-Term Gains In Bank Offers

In a candid advisory to Nigerian investors, financial expert and founder of KSBC Knowledge Resources Limited, Mr. Chika Mbonu, has urged caution for those considering participation in the ongoing banking public offers.

Speaking as a panellist during a recent industry outlook webinar titled ‘Banking Public Offers: Buy, Sell, or Hold?’ Mr. Mbonu emphasised the importance of a long-term investment horizon, warning that quick returns should not be expected.

“If you do not have the appetite to invest for at least five years, do not step in,” Mr. Mbonu advised.

He stressed that the growth potential of Nigerian banks is substantial, but only those willing to wait for the long term will reap the benefits of capital appreciation and dividends.

“It is only occasionally that some things happen overnight and prices move up. Give yourself a five-year horizon minimum to enable you to get the capital appreciation and the dividends required,” he explained.

Reflecting on past experiences, Mr. Mbonu recalled the banking consolidation of 2005, when many Nigerians rushed to invest without fully understanding the stock market.

“A lot of Nigerians bought bank shares in 2005 without a basic understanding of how the stock market works,” he said.

Mr. Mbonu recounted how traders in popular markets like Alaba and Idumota suspended their businesses to invest in banking stocks, only to watch the daily price movements with anxiety, expecting quick profits.

Mr. Mbonu’s message is clear; the current banking public offers are not a quick-win opportunity. Instead, they require patience and a willingness to wait for the potential growth of the banks to materialise.

He further highlighted that the issues that plagued the 2005 consolidation have been largely addressed, with improvements in corporate governance, regulatory monitoring, and business models within the banking sector.

“A lot of the problems we had in 2005 that made many people lose money no longer exist. The Banks are better supervised; the bubble capital that happened in 2005 will not happen this time around. The conditions are right for investors to commit to the banking industry,” Mr. Mbonu assured.

Beyond the general growth potential of the banks, he advised investors to conduct thorough due diligence on the banks they intend to invest in. He recommended looking at how the bank is being run, its track record, and its current operations to make informed decisions.

This cautionary advice comes against the backdrop of the Central Bank of Nigeria’s (CBN) recapitalisation program, announced in March 2024, which aims to strengthen the asset base of the banks. The program requires the banks to increase their minimum paid-in common equity capital and comply with the capital adequacy ratio (CAR) relevant to their license category. The banks have until April 1, 2026, to meet these requirements, with some, such as Fidelity Bank, GTCO, and Zenith Bank, already launching public offers to raise the necessary funds.

The recapitalisation effort is part of a broader strategy to help the banks take on greater risks, increase liquidity, and expand their loss-bearing capabilities. While the program is expected to have a positive impact on the economy, Mr. Mbonu’s advice serves as a reminder that investing in these public offers requires a long-term commitment and a patient approach.