The recapitalisation of the banking sector is crucial for bolstering the financial system and ensuring its resilience in the face of economic challenges. The Central Bank of Nigeria’s mandate for increased minimum capital requirements, alongside the Securities and Exchange Commission’s (SEC) guidelines, aims to fortify this objective.

As Nigerian Banks navigate this evolving landscape, they are presented with options for raising capital during the 2024-2026 recapitalisation period, such as rights issues, private placements, or other approved methods. Notably, many Banks, particularly those with international licences, have turned to public offerings as a key strategy for meeting these requirements. This trend was accelerated in July 2024, with four banks leading the first wave of public capital raises.

A public offering involves selling equity shares or other financial instruments to the public to generate capital. The purpose of raising capital varies depending on the company’s needs—ranging from funding business expansion to covering operational deficits or meeting regulatory capital requirements, as is the case for many banks.

While the role of credit ratings in the debt market is well documented, it’s important to recognise their significance in facilitating firms’ Seasoned Equity Offerings (SEOs) as well. Banks seek credit ratings when raising equity through public offerings because they anticipate that a favourable rating will enhance the success of the issuance.

Credit Rating Agencies (CRAs) assess an issuer’s credit quality, providing valuable insights for investors to make informed decisions. For banks, a strong credit rating signals the institution’s ability to sustain its lending activities, which is crucial for maintaining investor confidence.

Moreover, credit ratings function as an early warning system, offering evaluations of the creditworthiness of financial products. Consequently, CRAs are often integrated into market expectations, financial contracts, and securities regulations, further underscoring their importance in the capital-raising process.