The amount of outstanding Eurobonds floated by Nigerian Banks has hit $2.55 billion with the recent issuance by Diamond Bank. This is up from negligible levels five years ago, even as lenders are expected to increase offshore capital raising in the future in a bid to expand their loan books.
“There is a perception that the frequency and cumulative scale of Eurobond supply from Nigerian banks is increasing, especially following the very recent Zenith Bank USD500m 5-y deal (at 6.5 percent) and as Union Bank just announced that it would seek to raise $750m in the form of a medium-term note programme,” said Samir Gadio, emerging markets strategist at Standard Bank, London, in a note released May 15.
“In this context, the demand-supply mismatch for Nigerian corporate Eurobonds may incrementally become less pronounced,” he said.
The growing issuance of Eurobonds by Nigerian lenders signals the increasing ambitions of banks as opportunities open up in Nigeria, and as increased regulation causes lenders to grow loans to boost earnings.
Diamond Bank on Thursday sold $200 million in 5-y unsubordinated unsecured Eurobonds which pay a coupon of 8.75 percent. The yield at inception was 9.0 percent (issue price of 99.0), at the top of the high 8-9 percent guidance initially announced, and the equivalent spread over United States Treasuries (UST) around 744 basis points (bps).
The notes are expected to be rated B by S&P and Fitch.
Outstanding Eurobonds issued by Nigerian lenders are 70 percent higher than the $1.5 billion in sovereign Eurobond issuances.
In a recent report on Nigeria’s banking sector, analysts at Ecobank Research said lenders must find a new growth story to boost lending margins and match the return on equity (ROE) of regional peers.
Banks in Ghana and Kenya delivered 33 percent and 25 percent ROE, respectively, at the end of Q3 2013, according to Ecobank Research. This compares with Nigerian banks where Guaranty Trust Bank (GTB) delivered the highest ROE of 29 percent, followed by Diamond Bank and Stanbic IBTC with 23 percent each, for 2013.
Nigerian banks cut back lending after 2009 as regulators pressured them to curtail risks that fuelled the domestic banking crises. They also faced tighter rules and capital requirements that required them to evaluate borrowers more stringently through credit bureaus.
The lenders as a result preferred to invest retail deposits in treasury bills and bonds. They are, however, beginning to increase risk assets as reforms in power and other sectors open up opportunities for increased lending.
Banks lent a larger portion of their deposits in 2013 compared to 2012. The average loan-to-deposit ratio for the 12 banks rose to 58.8 percent in 2013 from 55 percent a year earlier.
Boosting lending by banks could help create jobs for the Nigerian economy, whose 7 percent growth in 2013 was below potential double-digit output, leaving 23 percent of the labour force unemployed.
Data from the CBN show that borrowing by companies in the private sector rose by 3.8 percent between January and April 2014 to N17 trillion. Private sector credit in Nigeria is growing off a low base, however, and is only equivalent to 21.2 percent of rebased GDP in 2013, compared to about 150 percent of GDP in South Africa.
Nigerian businesses said access to financing was the third-most problematic factor for doing business in Nigeria after infrastructure and corruption, according to the World Economic Forum global competitiveness report for 2013, meaning credit demand is not being adequately matched by supply.
PATRICK ATUANYA
