It’s a tale of rich bank ver­sus poor bank

The chasm be­tween haves and have-nots is widen­ing

The Star Early Edition - - BUSINESS REPORT - Emele Onu

THE DI­VIDE be­tween the haves and the have-nots among Nige­rian banks is widen­ing.

The coun­try’s big­gest lender is so flush with cash it plans to re­pay $400 mil­lion (R 5.14bil­lion) of bonds when they be­come due in Novem­ber 2018 rather than rais­ing ad­di­tional debt, while the next two largest banks 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.

Top tier banks in Africa’s most-pop­u­lous na­tion and big­gest oil pro­ducer are ral­ly­ing af­ter the cen­tral bank in April opened a for­eign-ex­change trad­ing win­dow, 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 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. “In the next one or two years we will prob­a­bly see the trend ex­tend­ing fur­ther.”

United Bank for Africa, the third-big­gest lender by mar­ket value, raised $500m 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. Guar­anty Trust Bank, Nige­ria’s largest lender, said this month it has no plans to sell Eurobonds, be­cause it’s set­ting aside funds to re­pay ex­ist­ing debt.

By con­trast, small- and-medium sized lenders like Wema Bank dropped plans last month to raise dol­lar loans to rather sell naira debt lo­cally in smaller tranches. Unity Bank, which missed a Fe­bru­ary 28 cen­tral bank dead­line to re­cap­i­talise, has been in talks with in­vestors since Oc­to­ber, while Di­a­mond Bank started

16.3% The yields on Nige­rian 5-year govern­ment bonds

ne­go­ti­a­tions to sell busi­nesses and is­sue debt more than a year ago.

“We view the Tier 2 banks as po­ten­tially chal­lenged,” Ex­otix Part­ners an­a­lysts Ju­mai Mo­hammed and Ronak Gad­hia said last month. The lenders seem un­able “to weather as­set-qual­ity de­te­ri­o­ra­tion storms.”

Still, the five-year dol­lar bonds didn’t come cheap. La­gos-based United Bank for Africa set­tled on a coupon, or in­ter­est paid twice an­nu­ally, of 7.75 per­cent. That’s the high­est of at least 10 sales of $500m by emerg­ing-mar­ket banks this year. Zenith will pay 7.375 per­cent on the se­cu­ri­ties it placed.

Even so, more lenders will is­sue Eurobonds, be­cause they need dol­lars to of­fer loans in the US cur­rency or to re­pay debt, said Lekan Ola­bode, an an­a­lyst at Ve­tiva Cap­i­tal Man­age­ment in La­gos.

Lome, Togo-based Ecobank Transna­tional plans to sell a $400m, 5-year con­vert­ible bond this month, which will be used to re­fi­nance debt and pro­vide short-term bridge fund­ing for non-per­form­ing loans at its Nige­rian unit, its big­gest busi­ness.

Ac­cess Bank has $350m of bonds due in July, while Fidelity Bank has to re­pay $300m next May. “Any Eurobond is­suance from the Tier 2 names will come in rel­a­tively more ex­pen­sive – im­pact­ing mar­gins,” Ola­bode said.

Some banks may use shareprice gains to sell eq­uity, al­though most trade at less than book value, mak­ing a rights of­fer­ing ex­pen­sive, he said. Lo­cal debt also comes at a price, with yields on 5-year govern­ment bonds at 16.3 per­cent.

The Nige­rian Stock Ex­change Bank­ing In­dex has ad­vanced 44 per­cent this year, with United Bank for Africa soar­ing 99 per­cent to its high­est since Jan­uary 2014, while Ac­cess Bank has climbed 83 per­cent to a four-year high. Wema has gained less than 2 per­cent and Skye Bank and Union Bank of Nige­ria are up about 10 per­cent in 2017.

Union Bank, in which for­mer Bar­clays chief ex­ec­u­tive Bob Di­a­mond’s At­las Mara owns 31 per­cent, said in Novem­ber it will sell as much as 50bn naira (R2bn) in a rights is­sue. The sale is still sched­uled to hap­pen by the end of this quar­ter, spokesper­son Ogochukwu Ekezie-Ekai­dem said on June 8.

With­out enough 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 per­cent con­trac­tion. – Bloomberg

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