Nigeria: Waiting for the storm to blow over

Search for fresh capital continues
The potential for earning large profits from the gas and related industries has spurred banks to take a closer look at other viable business opportunities in oil exploration, manufacturing, small and medium enterprises (SMEs) and even mortgages. Hence, many banks are now seeking supplementary capital to boost their capacity to lend more.

In the last year, more than eight banks have approached local and international investors in search of new capital. Access Bank Plc sold $400m of subordinated notes in June. FirstBank of Nigeria sold $450m of bonds in July.

Stanbic IBTC, the Nigerian unit of South Africa’s Standard Bank, plans to raise up to N30bn ($182m) in Tier 2 capital. In August, Diamond Bank raised $3.1bn to boost its operations. Sterling Bank has also raised $250m; Wema Bank and Ecobank have also been raising funds.

The list is endless.

Sola David-Borha, Stanbic IBTC’s CEO, said the actual amount they would raise would depend on market conditions and regulatory guidelines. She did not provide a time line. The bank is aiming for a 15% loan growth for the second half of this year, targeting business customers, after it grew loans 18% in the first half.

Ecobank Transnational Inc. (ETI)’s unit in Nigeria sold $200m of dated subordinated notes due in 2021. The issuance has a yield of 9% and a coupon of 8.75%. Deutsche Bank AG and Standard Chartered Plc were the lead managers.

Olufunke Jones, Ecobank Country Head, Power & Energy, said the bank would invest $25bn in five years to help solve Nigeria’s power sector crisis. She added: “Nigeria has one of the largest gaps between demand and supply for electricity.”

Alex Otti, Diamond Bank Plc CEO, said the bank needs the new capital to improve its Capital Adequacy Ratio (CAR) and boost growth. The bank has invested huge funds in SMEs and needs more funds to do more.

Adesoji Solanke, Equities Analyst at Renaissance Capital (RenCap), saw Diamond Bank’s decision to raise more funds as a step in the right direction. “The bank grew total assets by 155% between 2010 and 2013. It delivered such impressive growth despite its capital constraints. It recorded two consecutive years, 2012 and 2013 0f 23% return on equity. We find this remarkable,” he said in a report titled Diamond Bank – Time for the rights. He explained that the bank needed capital to support the next phase of its strategic growth plan, adding that it could achieve a loan growth of 20% this year. The feat, he said, could be maintained over the next two years to 2016, with deposit growth coming in higher at 25 to 30% over the period.

At the end of August, year-on-year private sector credit increased by 28.4%, reflecting strong appetite by the banking system to catalyse the real economy. Between 2010 and 2013, Nigeria attracted over $22bn in foreign direct investment (FDI), making it one of the top FDI destinations on the African continent.