Banking
More Banks to Raise Capital in 2017
By Obinna Chima
The macro-economic challenges in the country as well as the level of depreciation suffered by the nation’s currency, will compel more commercial banks to seek for avenues to beef their capital this year, a Lagos-based investment and research firm, CSL Stockbrokers Limited stated in a report titled: “Capital Adequacy: Pulse Check.”
The move, the firm added, is expected to enable the financial institutions withstand any shock in the industry as well as to remain above the regulatory threshold.
Capital adequacy is a persistent issue for a number of Nigerian banks. Regulatory capital ratios have been impacted by the large depreciation of the naira given the extent of dollar lending in the sector. They have also been hit by the sharp rise in impairments (implying little or no retained earnings).
The Central Bank of Nigeria (CBN) requires that banks with international subsidiaries maintain a capital adequacy ratio (CAR) of 15 per cent while banks without international subsidiaries maintain a CAR of 10 per cent. The minimum requirement for systemically important banks (effective July this year) is 16 per cent.
First City Monument Bank Limited (FCMB) last week sold N5.1 billion bonds, less than it originally planned to raise, at an interest rate coupon of 17.25 percent, its advisers said on Friday. The seven-year bond was issued by way of a book-building with Standard Chartered Bank, local investment bank Chapel Hill Denham and FCMB Capital Markets as book runners. The offer was fully subscribed.
But before the recent Access Bank’s offer, the last Eurobond issued out of Nigeria was in October 2014 by Seven Energy Finance Limited.
Sourcing naira bonds has also become a tough call given high interest rates on treasury bills and FGN bonds.
Wema Bank had embarked on an issue of N20 billion in local currency bonds after scrapping plans in 2015 to issue a $100 million 7-year dollar bond because of currency risks. Sterling Bank also tried to raise a N35 billion local currency-denominated bond last year.
However, a look at banks’ nine months 2016 capital adequacy ratios (CAR), according to the report suggested that the industry may begin to see a flurry of capital raising activities if macro-economic conditions fail to improve.
Nonetheless, the report indicated that the smaller banks may have more difficulty in finding willing investors in their foreign bond market and the domestic market. The bigger banks however appeared to have performed better last year as Guaranty Trust Bank successfully redeemed its $500 million Eurobond early 2016. Access Bank also successfully refinanced its existing senior unsecured $350 million 7.25% notes due July 2017 last year.
Despite challenges in the raising naira bonds, the expectation is that local currency bonds would remain the favoured option, especially for the mid-cap lenders.
According the report, the options available to the banks are limited in the current macro environment.
“Rights issues would be very dilutive given low share prices while raising tier-2 capital, by issuing long-term dollar subordinated debt, is difficult in as US dollar rates can be so high as to make the exercise unprofitable in terms of spreads on US assets.
“Sourcing naira bonds has also become a tough call given high interest rates on treasury bills and FGN bonds. Despite challenges in raising naira bonds, we believe that local currency bonds still remain the favoured option, especially for the mid-cap lenders, ” it added.
The CBN had tried various means in the past months to reduce the widening gap between interbank and parallel market rates. Despite these measures however, the naira has continued on a depreciatory path in the parallel market, and fell to a historic low of N500 to the dollar last week.
Asset quality also remains a problem for the industry. If a bank suffers an unexpected rise in cost of risk (COR) that exceeds the capacity of one year’s profits to absorb it, then that bank will be looking at writing down capital.
“We examine the potential impact on capital of a sudden surge in CoR and a notional further 20 per cent naira devaluation on capital adequacy. A further 20 per cent devaluation will still leave the banks we cover in this report above regulatory limits, although Diamond just barely. “In our first scenario, which assumes 10 per cent of loans to stressed sectors go bad, Zenith, Guaranty Trust Bank, UBA, Access, and Fidelity remain at comfortable capital levels.
“An unexpected surge in CoR, assuming 20 per cent of these loans go bad, however will take all the banks, with the exception of Access, below regulatory limits,” it added.
ThisDay
By Aduragbemi Omiyale
The Central Bank of Nigeria (CBN) has reaffirmed that the old and new Naira notes will continue to be used for financial transactions in the country beyond December 31, 2024.
There had been rumours that the old and redesigned N200, N500, and N1,000 banknotes would no longer be legal tender from Wednesday, January 1, 2025, because the central bank would phase out the notes in compliance with a Supreme Court judgement of November 29, 2023.
But the apex bank, in a statement signed by its acting Director of Corporate Communications, Mrs Hakama Ali, on Friday, clarified that the apex court’s judgement being cited did not authorise the bank to phase out the banknotes by the end of this year.
According to her, the court allowed the CBN to leave the old and new notes to be used concurrently until it decides to gradually phase out the former.
The central bank’s spokesperson urged members of the public to disregard claims suggesting the old series of these denominations would cease to be valid at the end of this year.
She urged them to continue to accept all Naira notes for daily transactions, encouraging banks to also adopt alternative payment methods such as electronic channels to reduce the pressure on physical cash usage.
“The Central Bank of Nigeria (CBN) has observed the misinformation regarding the validity of the old N1000, N500, and N200 banknotes currently in circulation.
“In line with the bank’s previous clarifications and to offer further assurance, the CBN wishes to reiterate that the subsisting Supreme Court ruling granted on November 29, 2023, permits the concurrent circulation of all versions of the N1000, N500, and N200 denominations of the Naira indefinitely.
“For the avoidance of doubt, all versions of the naira, including the old and new designs of N1000, N500, and N200 denominations, as well as the commemorative and previous designs of the N100 denomination, remain valid and continue to be legal tender without any deadlines,” the statement noted.
By Adedapo Adesanya
Access Bank Plc, the banking subsidiary of Access Holdings Plc, has entered into a binding agreement with South African-based Bidvest Group Limited for the acquisition of 100 per cent equity stake in Bidvest Bank Limited.
The deal for the 24-year-old South African lender is due to be completed in the second half of 2025, upon regulatory approval.
This shows Access Bank’s further expansion plans in line with goals set by its late founder, Mr Herbert Wigwe.
The agreement to acquire 100 percent stake in Bidvest Bank reflects Access Bank’s commitment to strengthening its footprint in South Africa and consolidating on its position as the continent’s gateway to global markets as it seeks to optimise the benefits of recent acquisitions and accelerate its transition towards a greater focus on efficiencies.
Bidvest Bank, founded in 2000 is a niche and profitable South African financial institution providing a diverse range of services, including corporate and business banking solutions and diverse retail banking products.
As of its year ended June 2024, Bidvest Bank reported total assets equivalent of $665million and audited profit before tax of $20million.
Upon conclusion of this acquisition, Bidvest Bank will be merged with the bank’s existing South African subsidiary to create an enlarged platform to anchor the regional growth strategy for the SADC region.
This is coming just as the bank opened a new branch in Malta as part of efforts to focus on international trade finance after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
The Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
By Modupe Gbadeyanka
To strengthen Europe-Africa trade ties, Access Bank has opened a new branch in Malta. It will focus on international trade finance, employing approximately 30 people in its initial phase, with plans for controlled expansion over time.
It was learned that this Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
Access Bank Malta Limited commenced operations after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
Malta, a renowned international financial centre, and a gateway between the two continents, is strategically positioned to play a pivotal role in advancing commerce and fostering economic partnerships.
This strategic expansion into Malta enables The Access Bank UK Limited to leverage growing trade opportunities between Europe and Africa.
It underscores the organisation’s commitment to driving global trade, financial integration, and supporting businesses across these regions.
“By establishing operations in Malta, we will gain a foothold in a market that bridges European and North African economies, moving us one step closer to our goal of becoming Africa’s Gateway to the World.
“It further enhances our bank’s capacity to support clients with innovative solutions tailored to cross-border trade and investment opportunities,” the chief executive of Access Bank, Mr Roosevelt Ogbonna, stated.
“Europe has emerged as Africa’s leading trading partner, driven by initiatives such as the Economic Partnership Agreements between the EU and African regions and the African Continental Free Trade Area (AfCFTA).
“With Europe-Africa economic relations entering a new phase, The Access Bank Malta Limited is ideally positioned to deepen trade and meet the financing and banking needs of our clients in these expanding markets,” the chief executive of Access Bank UK, Mr Jamie Simmonds, commented.
Also speaking, the chief executive of Access Bank Malta, Renald Theuma, said, “Malta is uniquely positioned as a bridge between Europe and Africa, making it an ideal location for our subsidiary. This move allows The Access Bank Malta Limited to engage more closely with customers in Europe and deliver tailored financial solutions that drive growth and connectivity across both continents.”
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