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Breakfast Report - 08 April 2024

Last week, the Central Bank of Nigeria (CBN) released a circular reviewing the minimum capital requirements for Commercial, Merchant, and Non-interest banks operating in the country. The upward review in the minimum capital requirement is necessary to withstand external and domestic shocks, enhance the resilience of Nigerian banks, and spur credit-led growth in the Nigerian economy. The Minimum capital requirement for commercial banks with international, national, and regional licenses was increased to ₦500 billion, ₦200 billion, and ₦50 billion from ₦50 billion, ₦25 billion, and ₦10 billion respectively. We expect the new capital requirement to drive consolidation within the banking sector and drive higher contribution from the financial services industry to the real output of the Nigerian economy.

Equity: The banking sector lost 6.73% last week, reducing its YTD gain to 7.04%, as investors weigh the immediate and long-term effects of the revised minimum capital requirement for the sector. While the sector is expected to benefit from the recapitalization in the long-term, we might still see some bearish sentiment, as investors await full year results. We still expect the banks to dictate market direction this week.

Fixed Income: A Treasury bills auction is scheduled for this week so; auction results are expected to direct trading sentiments. Meanwhile, we expect investors to favour short to mid-term instruments over longer-dated ones.