DIR Return Create A Forum - Home
---------------------------------------------------------
Nigerian Hardware and Software Forum
HTML https://nairateck.createaforum.com
---------------------------------------------------------
*****************************************************
DIR Return to: Business
*****************************************************
#Post#: 107--------------------------------------------------
Divide Among Banks Widens As Small Lenders Face Cash Crunch
By: magbytes120 Date: June 14, 2017, 2:23 am
---------------------------------------------------------
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.
HTML http://www.thisdaylive.com/index.php/2017/06/14/divide-among-banks-widens-as-small-lenders-face-cash-crunch/<br
/>
*****************************************************