With the March 2026 recapitalisation deadline drawing nigh, struggling banks are ditching initial public offerings (IPOs) for alternative fund-raising variants owing to regulatory hurdles, stringent listing requirements, and high transaction costs.

Whereas the marginal operators have opted for strategic pitching and rights issues, tier-one banks which have gone to the market, have scooped over 100 per cent of their targets to scale the recapitalisation hurdle.

So far, seven operators, who have announced complete or interim results of their recapitalisation efforts, have pooled a total of N1.32 trillion from a blend of approaches, including rights issues and public offers (POs).

The seven banking institutions are Access Holdings, GTCo, Zenith Bank, FCMB Group, Sterling and Wema Bank. UBA and Fidelity are expected to announce the outcomes of their process in the coming weeks.

Like Access, GTCO and Zenith, the other two members of the systemically important banks (SIBs) – UBA and FBN Holdings, the parent company of FirstBank – are expected to meet the recapitalisation goal seamlessly. While the former may have completed its process and is only waiting for the official announcement, the latter is yet to begin fundraising.

In place of POs, small lenders are exploring rights issues, business combinations and private placement to raise funds. Going public by players such as Providus, Globus, Premium Trust, Nova, Lotus, TAJ Bank, and other merchant banks for fresh capital to meet the new requirement would have helped to end the hiatus in the IPO market.

But by opting for mergers and acquisitions, they have dashed expectations that the recapitalisation exercise would have heralded a revival in the IPO market, which has recorded little or no activity in the last decade.

Expectedly, market stakeholders have continued to lament the missed opportunity to attract new investors and inject vibrancy into the stock market.

When the recapitalisation directive was announced, experts anticipated that it would trigger a surge in IPOs, with smaller banks expected to tap the capital market to raise funds.

Dozens of merchant and non-interest banks operating in the country are also required to raise their capital to N50 billion and they were earlier expected to flood the market with IPOs, starting last year.

However, midway into the programme, the expectations have largely been unmet, as many of these banks may have opted to consolidate through mergers rather than going public.

So far, none of the tier-three banks has a plan to source funding through IPO. The Guardian learnt that the high cost of executing IPOs, perceived over-regulation of publicly quoted companies, and stringent requirements are among the reasons IPOs have become unattractive to operators.

Generally, IPO success depends on the promoters’ corporate performance, marketing campaign, and company leadership. According to sources, some of the banks may be sceptical of their ability to attract subscriptions, especially from retail investors who got their hands burnt in the past.

Hence, strategic mergers and new core investors are being explored by the marginal banks, some of which are yet to unveil their full plans. Earlier, Unity Bank and Providus Bank struck a business combination deal, which was approved by the Central Bank of Nigeria (CBN) with the provision of N700 billion support for the new entity, underscoring the banks’ preference for consolidation over public listing in a bid to meet regulatory capital requirements.

Unity Bank and Providus Bank, both operating as commercial lenders, are required to increase their capital base from N25 billion to N200 billion in compliance with regulatory mandates.

The avoidance of IPO development has reignited concerns about barriers to public listings in the country. Investigations revealed that regulatory hurdles constitute a major factor that is discouraging the banks from going public.

Also, stringent requirements such as extensive financial disclosures, profitability thresholds, and requirements for a minimum number of operational years, have posed significant challenges for many of the relatively young institutions.

The Guardian learnt that the high cost associated with compliance is also a deterrent, further exacerbating the difficulties of going public in a market that has struggled to attract new investments for years.

Arising from historical trends, analysts had expressed optimism that the recapitalisation process would inject fresh air into the Nigerian stock market through new listings.

The 2004 banking reconsolidation drove public awareness and participation in the capital market to a new height. Then, seven banks raised a total of N125.5 billion through IPOs.

The banks include Zenith Bank, Guaranty Trust Bank, Fidelity Bank, the Default Intercontinental Bank, Unity Bank, Bank PHB (now Keystone Bank) and First City Monument Bank (FCMB).

Zenith Bank raised approximately N48 billion, while Fidelity Bank raised N8 billion. Intercontinental Bank raised N20 billion while Unity Bank raised N12.5 billion. Bank PHB raised N10 billion just as FCMB raised N16 billion from their IPOs. Guaranty Trust Bank, which was already listed before the programme, raised about N11 billion through a secondary public offering (SPO).

The IPOs attracted considerable interest, with high oversubscription rates, signaling strong demand, from the resurging retail investors. For instance, Zenith Bank’s IPO was oversubscribed by approximately 600 per cent while Fidelity Bank’s IPO was by 400 per cent, demonstrating the excitement among retail investors eager to participate in Nigeria’s rapidly evolving banking sector.

Retail investors, including individuals and smaller institutions, played a significant role in the success of the IPOs. The offerings gave them the rare opportunity to invest in some of Nigeria’s most prominent banks as the sector went through consolidation and expansion.

At the time, the then Nigerian Stock Exchange (NSE) had a market capitalisation of N2.1 trillion, meaning the N125.5 billion raised by the banks represented 5.94 per cent of the overall market value.

Before the 2004 banking consolidation, stock market participation was limited, with estimates suggesting that only about three per cent of Nigerians were involved in investments.

However, the success of the IPOs and the banking sector’s transformation significantly broadened the base of investors in Nigeria’s capital market.

By 2005, retail investors’ participation had surged, with estimates suggesting that the number of retail investors in the Nigerian stock market exceeded one million, implying a profound shift in investment culture.

This growth was driven not only by the IPOs but also by initiatives from the government and financial regulators to promote the stock market as a means of wealth creation.

The increased participation of retail investors alongside institutional investors, contributed to the development of a more vibrant and inclusive capital market by 2005, setting the stage for continued growth in the years that followed.

However, the 2026 recapitalisation is different as the public offerings market remains largely stagnant and continues to be dominated by a small group of long-established investors.

The lack of fresh offers is currently limiting growth and opportunities for new market participants, leaving many investors with limited options. However, operators are arguing that listing new banks and major corporations, such as the Nigerian National Petroleum Company Limited (NNPCL), would provide Nigerians with the opportunity to invest in and share in the success of these institutions.

A comparison of IPO activities across African markets over the last 10 years highlights the limited performance of Nigeria’s IPO landscape.

For instance, the Egyptian Stock Exchange (EGX) recorded seven IPOs during this period, while Zambia’s Lusaka Securities Exchange hosted two.

South Africa’s Johannesburg Stock Exchange (JSE) saw slightly more activity with four IPOs, collectively raising $6.9 billion.

In contrast, the Nigerian IPO market has been relatively stagnant, with only two firms – Seplat Energy and MTN Nigeria- recorded on the NGX over the same timeframe.

Seplat’s IPO raised $500 million and achieved dual listing on the NGX and London Stock Exchange, while MTN Nigeria’s IPO generated over N400 billion, making it one of the largest in the history of the NGX.

An independent investor, Amaechi Egbo, argued that the costs associated with preparing for an IPO and maintaining the transparency required of publicly listed companies could be substantial.

He noted that for banks still in their growth phase, allocating resources to these expenses could hinder their operational expansion plans. A research analyst at Cowry Asset Management Limited, Charles Abuede, stated that many new banks are turning to mergers, acquisitions, and private capital-raising strategies as more viable alternatives to IPOs.

According to him, factors such as inflation, currency depreciation, and a volatile stock market are contributing to the reluctance to pursue public listings.

He explained that these conditions could lead to undervaluation and reduced investor confidence, especially for banks that are still in their early stages of development. In addition, he affirmed that IPOs are perceived as costly and may require banks to relinquish substantial ownership stakes, potentially conflicting with their long-term strategic objectives.

As relatively new entrants, these banks are prioritising the consolidation of their financial strengths and market presence. They are leveraging private equity and strategic partnerships to access capital more quickly and with greater control.

“This approach has been facilitated, in part, by the CBN ‘s regulatory flexibility, which allows banks to explore alternative capital-raising avenues in response to the current economic climate.”

The Executive Director of Halo Nigerian Capital Market, Dr Paul Uzum, noted that attracting investors to newly listed companies is challenging when these companies lack a proven track record of profitability.

According to him, Nigerian investors tend to prefer companies with a history of consistent profits and dividend payments.

Also reflecting on the changing investment landscape, Uzum pointed out that the once vibrant enthusiasm for buying shares has diminished significantly.

He revealed that the investor base has narrowed down to just a small percentage of about one to two per cent comprising financially savvy Nigerians, who make informed investment decisions.

This shift, he noted, showed a more cautious and strategic approach to investing in the Nigerian capital market and the reason for companies seeking to raise capital through public offerings should demonstrate consistent performance and financial reliability to attract investor interest.

“Today, only a small percentage of around one to two per cent of the population engages in investing in equities, with a more strategic, informed approach.

For banks seeking to raise capital, demonstrating consistent performance and financial reliability is crucial to attracting this small, financially savvy group of investors,” he said. (The Guardian)