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.

http://www.thisdaylive.com/index.php/2017/06/14/divide-among-banks-widens-as-small-lenders-face-cash-crunch/
cc: lalasticlala, dominique, Mynd44

Can someone translate the above to english pls? The epistle long abeg.

hmm
Check my signature

I hope our Bank will not experience the Economic recession that affected most banks in 2008/09 economic meltdown

So make we fry tea? ??

Summary pls

this is tu much for me to read jare

anyways okay sha..

K

kool

All of them above me shouting cool, ok, summary never read the epistle. Lemme not lie, I didn't read it either

so, what is the implication?

Chai! This generation can't read.
Anywaiz, GTB is the strongest teir 1 bank and has no need to raise fund through bond sales.

Meanwhile, there is Gtb and others

HomesOfLife:
Can someone translate the above to english pls? The epistle long abeg.

OP, the guy man yawn say some banks tall well well while some other banks are very very short.
I hope u understand this Chinese version of the banking journalism of who is who in the the Naija Banking Sector

The solution for the tier 2 banks (skye, sterling, fidelity, heritage, etc) is merger and acquisition or get aggressive on recovery of their massive toxic assets..For instance, Skye bank with over millions of dollar sitting in non-performing loan needs to come up with debt recovery strategies....However, CBN should not use tax payers money to refinance any of them as this is a very expensive venture and continue to harbor sharp practices by these banks....The market leader by balance sheet size remains GTB followed by Zenith and First bank

Everything in Nigeria is disintegrating

okay good

So GTB is the strongest bank?

Keystone bank ha far na?

MMM is still the best. All these bank grammars na rubbish. Enjoying my mavro 30% every month jare.

nawa

so UBA (that only reminds me of uncooked chicken in MR Biggs) is Tier 1?
anyway, am ok wit my WEMA n Sterling(tier 7I think)

The gap between the tier1 and tier2 banks is becoming very wide.

Kudos to the likes of GT,Zenith and UBA for their astute business and management strategies.

However,the tier2 banks need to do something urgently to save their heads(and save jobs too}.Most of the tier2 banks are in this poo because of their erratic lending before the collapse of oil price without due diligence.To make matter worse most of their non performing loans are in hard currencies.

I pray the greedy management of most of these tier2 banks do not resort to the easy way out especially Diamond Bank,which is massive retrenchment.Our banking sector needs serious sanitation.

The nonsense banks kukuma no help us when we needed a loan for a building project..! Nonsense people that don't deserve any help....
I wish them the best though. Let's sell off their collateral asap to raise back the loans