The divide between the haves and the have-nots among Nigerian banks is widening, a report by Bloomberg has indicated. The
country’s biggest lender by market capitalisation, Guaranty Trust Bank
Plc, is so flush with cash it plans to repay its $400 million of bonds
when they become due in November 2018 rather than issuing additional
debt, while the Zenith Bank Plc and United Bank for Africa (UBA) Plc –
the next largest banks by market capitalisation – sold international
bonds for the first time since 2014.
At the other end of the
scale, smaller lenders are scrapping plans to raise dollar loans and
struggling to find investors to raise capital. Tier 1 banks in
Africa’s most-populous nation and biggest oil producer are rallying
after the Central Bank of Nigeria (CBN) in April opened a foreign
exchange trading window for investors and exporters, easing a crippling
currency shortage that contributed to the worst economic contraction in
25 years.
Smaller banks are lagging behind as they battle rising
levels of non-performing loans (NPLs) and capital buffers near
regulatory minimums.
“The gap between the Tier 1 and Tier 2 banks
has been widening in profitability and balance-sheet size,” said
Omotola Abimbola, an analyst at Afrinvest West Africa Ltd.
“In the next one or two years we will probably see the trend extending further.” UBA,
the third-biggest lender by market value, raised $500 million in its
first Eurobond sale on June 1 at yields below initial guidance. This followed an equivalent issue a week earlier by Zenith Bank in a deal that was four times oversubscribed.
GTBank said this month it has no plans to sell Eurobonds because it’s setting aside funds to repay existing debt. By
contrast, small- and mid-sized lenders like Wema Bank Plc dropped plans
last month to raise dollar loans to rather sell naira debt locally in
smaller tranches.
Unity Bank Plc, which missed a February 28
central bank deadline to recapitalise, has been in talks with investors
since October, while Diamond Bank Plc started negotiations to sell
businesses and issue debt over a year ago. “We view the Tier 2 banks
as potentially challenged,” Exotix Partners LLP analysts Jumai Mohammed
and Ronak Gadhia said in a note last month. The lenders seem unable “to
weather asset-quality deterioration storms”.
The central bank had
to step in last year when it replaced the top management of Skye Bank
Plc for breaching liquidity thresholds. That’s still a far cry from
the full-scale takeovers in 2009, when former central bank Governor
Lamido Sanusi rescued 10 lenders and spent N1.8 trillion ($5.5 billion)
to rescue banks that had been brought to their knees by souring loans
and corrupt managers. Still, the five-year dollar bonds didn’t come cheap. UBA settled on a coupon, or interest paid twice annually, of 7.75 per cent.
That’s
the highest of at least 10 sales of $500 million by emerging-market
banks this year from Turkey, Kuwait, Bahrain, South Korea and China.
Zenith will pay 7.375 per cent, compared with 6.25 per cent on five-year
notes sold in April 2014.
Even so, more lenders will issue
Eurobonds because they need dollars to offer loans in the U.S. currency
or to repay debt, said Lekan Olabode, an analyst at Vetiva Capital
Management Ltd. in Lagos. Ecobank Transnational Inc., based in Lome,
Togo, plans to sell a $400 million, five-year convertible bond this
month to refinance debt and provide short-term bridge funding for
non-performing loans at its Nigerian unit.
Fidelity Bank Plc will
decide in the third quarter whether to refinance $300 million of bonds
due in May next year or issue new debt after seeing yields on the
securities drop and strong demand from investors for Zenith and UBA’s
notes, Chief Operations Officer Gbolahan Joshua said Tuesday. Access
Bank Plc has $350 million of bonds due in July. Some banks may use
share-price gains to sell equity, although most trade at less than book
value, making a rights offering expensive, Olabode said.
Local debt also comes at a price, with yields on five-year government bonds at 16.3 per cent. The
Nigerian Stock Exchange Banking (NSE) Index has advanced 44 per cent
this year, with UBA soaring 99 per cent to its highest since January
2014, while Access Bank has climbed more than 80 per cent to a four-year
high.
Wema has gained less than 2 per cent and Skye Bank and Union Bank of Nigeria Plc are up about 10 per cent in 2017. Union
Bank, in which former Barclays Plc Chief Executive Officer Bob
Diamond’s Atlas Mara Ltd. owns 31 per cent, said in November it will
sell as much as N50 billion in a rights issue scheduled to take place by
the end of this quarter.
Sterling Bank, which announced plans to
raise N65 billion in Tier 2 capital last July, managed to raise N7.9
billion in 2016 at 16.5 per cent, and is waiting for market conditions
to improve before another issuance, according to Chief Financial Officer
Abubakar Suleiman.
Without capital to back new business and
write loans, small lenders risk falling further behind as Nigeria’s
economy recovers from last year’s 1.6 per cent contraction. The International Monetary Fund (IMF) has forecast Nigeria will expand 0.8 per cent in 2017 as oil price improves.
“Big
banks have a pricing advantage,” said Vetiva’s Olabode. “That makes a
big difference in size and capacity to do business,” he stated. But
even with the disparity between Tier 1 and Tier 2 banks in the country
widening, there were indications Tuesday that confidence in the Nigerian
FX market has been restored, with the cumulative transactions on the
Investors’ & Exporters’ (I&E) segment of the market rising to
$2.2 billion, from about $1 billion last month. Confirming this Tuesday,
CBN spokesman, Mr. Isaac Okorafor, also disclosed that trading on the
I&E window, has helped in boosting liquidity and ensured timely
execution and settlement of eligible transactions.
The spokesman
expressed confidence that interventions by the central bank would
continue to guarantee stability in the market and ensure availability to
individuals and business concerns. CBN Governor, Mr. Godwin Emefiele,
in an exclusive interview with THISDAY at the weekend said the
introduction of the I & E window had eliminated sharp practices in
the market.
“Now, everything is done in the open and in a very
transparent manner. If you want to sell your dollars, you offer the
banks and the bank knowing that he has a buyer, matches you with the
buyer and the bank makes only N1 spread.
“With the transparency
that has been brought into that market, we have seen a lot of inflows
into that market and rates began to converge… “As much as possible,
the central bank does not want to be seen to be having excessive control
over the market. We can only come in based on our reading of the
market, based on our understanding of what the exchange rate is, to come
in to intervene as a player in the market,” Emefiele said.
Analysts
believe that the increase in volume of transactions on the I&E
segment is a positive sign of return of confidence in the financial
markets as clearly demonstrated by the bull run on the stock market.
According
to them, the investor sentiment has strengthened since the CBN
introduced the I&E FX window, which they agreed has ensured greater
flexibility in exchange rate determination. They, however, advised the
CBN to continue its march towards the convergence of rates. Meanwhile, the CBN said it injected another $418 million into various segments of the inter-bank Tuesday.
Figures
obtained from the CBN indicated that the retail segment of the market
received the highest intervention with $226 million, followed by the
wholesale window that got $100 million. The Small and Medium Enterprises
(SMEs) window received a boost of $50 million, while the retail
invisibles segment was allocated $42 million to meet the demands of
customers.
The CBN on Monday injected $413.5 million into the
interbank market in its unrelenting bid to guarantee liquidity in the
market and shore up the value of the naira. The naira remained stable at
N363/$1 on the parallel market Tuesday.
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