Nigerian lenders are gearing up to sell the most debt in four years to bolster cash reserves, taking advantage of a drop in borrowing costs before the central bank (CBN) increases how much capital they need to hold.
International debt sales are becoming more common as yields on Nigerian Eurobonds due July 2023 declined 96 basis points this year through Monday to a record. That compares with an average 35 basis-point drop in emerging-market yields, according to Bloomberg indexes.
The CBN last month changed the way lenders calculate capital buffers to align Africa’s top oil producer with global standards and increase ability to withstand losses five years after saving the industry from collapse. The regulator ordered Nigerian banks it considered too big to fail to boost minimum capital ratios to 16 percent last year, compared with 10.5 percent for South African lenders.
The CBN removed some assets lenders can count as capital in preparation for the implementation of Basel II and III, while limiting Tier 2 capital to 33 percent of Tier 1 capital, according to an Aug. 5 circular from the regulator. Minimum capital requirements for lenders with operations outside the country were kept at 15 percent and at 10 percent for those with interests only in Nigeria.
Yields on Access Bank’s $400 million of seven-year subordinated notes have dropped 78 basis points, or 0.78 percentage point, since they were issued in June to 8.72 percent. FBN Holdings sold $450 million of securities due 2021 in July, while Ecobank Transnational Inc. last month issued $200 million of notes maturing in 2021.
Rates on Nigeria’s government bonds maturing in nine years rose 1 basis point to 4.97 percent by 12:32 p.m. in Lagos, the commercial hub, increasing from their lowest level on record. Speculation that the European Central Bank will boost stimulus amid signs of recovery in the U.S. economy is boosting demand for riskier assets.
“Banks that are ready will want to do it this year to take advantage of cheaper rates,” Sterling Capital’s Sewa Wusu said.
