More Nigerian banks may patronize the fixed income markets next year in order to shore up capital and finance expansion plans after the current macroeconomic headwinds made the equity market unattractive.
Lenders are already tapping into the international bond markets as the total planned issuance in 2016 stood at N138.62 billion ($454.54 million), data gathered by BMI shows.
Analysts say such issuance by banks will strengthen balance sheet and the ability to with stand the shocks caused by systematic risk.
The current macroeconomic headwinds have implication on asset quality of banks capital.
Industry NPLs is in excess of 12.0 percent with impairment eating deep into banks earnings and profitability as well as capital adequacy, according Robert Omotunde Analyst at Afrinvest West Africa.
“Debt capital raising by way of bond issuance qualifies as Tier 2 capital for banks and we may likely see more of the banks exploring this option to up capital adequacy going into 2017,” said Omotosho.
A breakdown of the aforementioned figure shows Access Bank Plc, a Tier lender, in October, 2016, successfully completed the raising of a (N91.50 billion) $300m Eurobond which the bank promised to use part of in refinancing its $350 million Eurobond which is maturing in July 2017 as part of a US$1 billion global medium term note programme.
First City Monument Bank (FCMB) Group Plc plans to complete Tier II bond raising of at least N7.5 billion ($24.50 million) which will help deleverage the balance sheet.
United Bank for Africa (UBA), a tier 1 lender said it had raised N20 billion ($65 million) in debt to strengthen its capital base and help increase lending.
Wema Bank, a mid tier lender plans to raise N20 billion ($65 million) bonds to finance the construction of new branches.
Nigerian banks are grappling an economic downturn as assets quality is getting poorer on the back of exposure to the oil and gas sector. NPLs have approached the amber level while huge write offs are overwhelming profit.
Analysts say it is expected that in the period of negative credit cycle, where many businesses are unable to pay interest on loans borrowed, lenders revenue earnings will receive a beating.
Nigeria’s economy is in its worst recession in 25 years on the back of a 40 percent fall in the price of oil and a severe dollar shortage. The economy contracted by 2.20 percent in the third quarter of the year while the IMF forecasts GPD will shrink by 1.70 percent by 2016.
A currency control imposed by the FG caused capital outflow as investors fled fretting that a sudden devaluation of the currency would lead to loss of significant investment.
BALA AUGIE
