Nigeria: Waiting for the storm to blow over

Banks issue bonds
The Debt Management Office (DMO) confirmed that Nigerian companies issued nine bonds worth $30.4bn in the international capital market over the last three years. Dr Abraham Nwankwo, Director-General of the DMO, said the Nigerian companies took advantage of the successful issuance of Nigerian sovereign Eurobonds to successfully issue the international bonds. He noted that “for the first time in Nigeria’s economic history, the private sector has been enabled to access long-term funds from both the domestic and international capital markets”.

He explained that banks and other companies are now able to fund long-term real sector projects in agriculture, manufacturing, housing, mineral exploration and processing and infrastructure. This would a diversified and sustainable economic growth, create employment generation and reduce poverty. Twenty-two Nigerian companies raised over $1.37bn from the domestic market between 2007 and 2013.

Nwankwo said diversifying the country’s source of revenue will make its public debt profile more sustainable. He said Nigeria can now borrow up to 56% of its GDP and the debt/GDP ratio could be as high as 56% without raising eyebrows in terms of creditworthiness.

“So it is an appreciation from the point of view of those global financial institutions that the Nigerian economy is moving to the next level and has been reclassified by the IMF,” he said.

With the increased appetite to raise fresh funds, the CBN issued a directive on how far a bank can go in raising Tier 2 Capital, otherwise called supplementary capital. Tokunbo Martins, CBN’s Director of Banking Supervision, said that henceforth, total Tier 2 capital, including other comprehensive income reserves, is limited to 33.33% of total Tier 1 capital.

Martins said the policy is in line with global efforts at raising the quality and loss absorbency of the capital base of banks.

CBN’s monetary policy has significantly reined in inflationary pressures, bringing it to 8.3% in July. The continuous implementation of banking reforms has not only strengthened the banks’ financial intermediation process but also resulted in improved interventions in relevant and critical sectors of the economy. The banks have become safer and sounder as a result of the activities of Asset Management Corporation of Nigeria (AMCON) and other reforms. Analysts say that in spite of the slow recovery in global growth, the future of the Nigerian economy remains positive and encouraging.