October 19, (THEWILL) — Nigeria’s biggest lenders may be riding high on recapitalisation headlines, but beneath the surface, a silent drain is eroding the very profits that attract investors to the sector.
Fresh disclosures from the half-year 2025 financial statements of listed banks show that total contributions to the Asset Management Corporation of Nigeria (AMCON) fund climbed to about N442 billion — a 14 percent rise from N387 billion a year earlier.
The charge, a statutory 0.5 percent levy on total assets, has long served as AMCON’s primary revenue source for servicing the toxic-asset resolution of the 2009 banking crisis. But with banks’ balance sheets now exceeding N80 trillion collectively, following recapitalisation-driven expansion, the levy has swollen into a major cost centre.
Fixed Cost, Shrinking Margins
Unlike most operating expenses that move with income, the AMCON levy is asset-based, not profit-based. That means even in years of weaker earnings, banks must remit the same proportion of their balance-sheet size. For shareholders, this effectively acts as a fixed tax on growth — as banks expand lending and deposits, their AMCON bill automatically rises.
For the top 10 listed lenders, this fixed burden saved an estimated N442 billion off pre-tax earnings in H1 2025, equivalent to roughly 11 percent of the sector’s combined gross profit. Zenith Bank alone incurred about N70 billion in AMCON costs, Guaranty Trust Holding Company (GTCO) N63 billion and Access Holdings nearly N60 billion. FBN Holdings and UBA followed with N52 billion and N48 billion, respectively.
The result: while asset expansion from recapitalisation boosted total balance sheets, net profit margins contracted across the tier-1 group. Average profit after tax growth slowed to 19 percent year-on-year in H1 2025, compared with 33 percent in H1 2024.
Impact on Dividend Yields and Investor Value
Banking stocks have traditionally been the Nigerian Exchange’s dividend powerhouses. However, 2025 is showing early signs of yield compression. Average dividend yield across tier-1 banks slipped to around 9.8 percent from 12.4 percent in 2024, as retained earnings were diverted to cover statutory charges and new capital requirements.
For instance, Zenith Bank’s interim dividend for H1 2025 stood at N1.50 per share — flat on last year despite a 38 percent increase in gross earnings. GTCO and UBA followed the same conservative path, prioritising capital buffers over payout expansion.
Investors have taken note. The NGX Banking Index, while up 22 percent year-to-date, still trails the broader All-Share Index’s 27 percent gain. Market watchers attribute part of this under-performance to the dampening effect of recurring AMCON deductions on distributable income.
The irony is clear: Recapitalisation was meant to strengthen banks and inspire confidence, yet the cost of that very expansion has inflated a levy that limits immediate investor reward.
Distortion of Valuations on the Exchange
Because the AMCON levy rises automatically with asset growth, it distorts how investors value Nigerian banks relative to peers in other emerging markets. Even when earnings per share improve, price-to-earnings ratios remain compressed as investors discount the predictable drag from future AMCON obligations.
Across the board, listed banks now trade at an average P/E multiple of 3.8x — below the sub-Saharan African peer average of 6.1x. This undervaluation has persisted despite robust capital inflows into the Nigerian equities market, where total turnover hit N6.92 trillion in September 2025, the highest in 18 years.
Institutional investors seeking yield have expressed stronger appetite for financial services stocks in general, but valuation ceilings remain capped by the perception of structural levies and policy-induced costs. That means each additional naira of earnings generates less upward momentum in share price than fundamentals alone would justify.
How Recapitalisation and AMCON Intersect
The Central Bank’s recapitalisation directive, issued in March 2024, requires banks to meet new minimum capital thresholds by March 2026. This push has prompted a wave of rights issues, private placements, and Tier II capital injections that have expanded total banking assets by more than N20 trillion within 12 months.
But those larger balance sheets automatically translate into higher AMCON remittances. Analysts estimate that every N1 trillion increase in total assets attracts roughly N5 billion in additional annual AMCON levy. Hence, even as lenders raise capital to fortify resilience, they face a proportional rise in fixed obligations.
That creates a paradox: the more banks grow to meet regulatory capital strength, the more they pay into a legacy resolution fund, reducing retained profits available for reinvestment or dividends.
Sector-Wide Ripple Effects
The levy’s weight is also reshaping sector behaviour. Mid-tier banks — Fidelity, Wema, and Sterling — are tightening cost-to-income targets to offset rising statutory charges. Some have accelerated digital-banking adoption and branch consolidation to free cash flow. Others are pursuing asset-light strategies to temper future AMCON exposure.
For investors, these strategic pivots are double-edged. Efficiency gains may boost long-term profitability, but the near-term effect is muted dividend growth and lower cash returns. The sector’s Q2 2025 aggregate cost-to-income ratio climbed to 62 percent, up from 57 percent a year earlier, underlining the profit squeeze.
Investor Sentiment and Market Health
Despite these pressures, sentiment toward Nigerian banking stocks remains broadly positive. The recapitalisation narrative has positioned the sector as a long-term growth story, supported by robust liquidity and improved governance. Foreign portfolio inflows into bank equities rose 31 percent in Q3 2025 year-on-year, driven by expectations of stronger earnings once recapitalisation concludes and fixed costs stabilise
However, investors are now pricing in the structural drag from AMCON expenses as part of their risk models. Shareholders recognise that, unless the levy formula is reviewed or phased out, annual profit growth will continue to lag behind asset expansion.
Outlook: Balancing Reform and Reward
The AMCON levy is set to remain in place until the corporation’s obligations are fully repaid — a process that could stretch beyond 2030 given the size of its debt portfolio. For banks and investors alike, this implies several more years of compressed margins even in a bullish credit environment.
Still, the long-term fundamentals of the sector remain resilient: strong capital adequacy ratios, rising digital penetration, and improving asset quality. What the AMCON burden underscores is the need for a policy recalibration that aligns financial-system stability with investor incentives.
Until then, Nigeria’s banking stocks will continue to offer a paradoxical picture — sound, liquid, and expanding, yet persistently undervalued as a hidden tax keeps chipping away at the returns investors expect from Africa’s most profitable banking market.
Ogochukwu Onwaeze
