Banking
Unity Bank, Wema Bank, Others “Potentially Challenged”—Report
By Modupe Gbadeyanka
All seems not to be too well with second tier banks in Nigeria, including Unity Bank, which has reportedly been in talks with investors since October.
According to a report by Bloomberg, analysts at Exotix Partners LLP, Jumai Mohammed and Ronak Gadhia said in a note last month that, “We view the Tier 2 banks as potentially challenged” because they seem unable “to weather asset-quality deterioration storms.”
Bloomberg said in its report published today titled ‘Nigeria Bank Divide Widens as Cash Shortage Chokes Small Lenders’ that small-and-medium sized lenders like Wema Bank Plc dropped plans last month to raise Dollar loans to rather sell Naira debt locally in smaller tranches.
Unity Bank Plc, which missed a February 28 central bank deadline to recapitalize, has been in talks with investors since October, while Diamond Bank Plc started negotiations to sell businesses and issue debt over a year ago.
The report quoted an analyst at Afrinvest West Africa Ltd, Omotola Abimbola, as saying “The gap between the Tier 1 and Tier 2 banks has been widening in profitability and balance-sheet size,” expressing fears that, “In the next one or two years, we will probably see the trend extending further.”
Below is Bloomberg’s report:
The divide between the haves and the have-nots among Nigerian banks is widening.
The country’s biggest lender is so flush with cash it plans to repay $400 million of bonds when they become due in November 2018 rather than raising additional debt, while the next two largest banks sold international bonds for the first time since 2014.
At the other end of the scale, smaller lenders are scrapping plans to raise dollar loans and struggling to find investors to raise capital.
Top tier banks in Africa’s most-populous nation and biggest oil producer are rallying after the central bank in April opened a foreign-exchange trading window, easing a crippling currency shortage that contributed to the worst economic contraction in 25 years.
Smaller banks are lagging behind as they battle rising levels of non-performing loans and capital buffers near regulatory minimums.
“The gap between the Tier 1 and Tier 2 banks has been widening in profitability and balance-sheet size,” said Omotola Abimbola, an analyst at Afrinvest West Africa Ltd. “In the next one or two years we will probably see the trend extending further.”
United Bank for Africa Plc, the third-biggest lender by market value, raised $500 million in its first Eurobond sale on June 1 at yields below initial guidance.
This followed an equivalent issue a week earlier by Zenith Bank Plc in a deal that was four times oversubscribed. Guaranty Trust Bank Plc, Nigeria’s largest lender, said this month it has no plans to sell Eurobonds because it’s setting aside funds to repay existing debt.
‘Potentially Challenged’
By contrast, small- and-medium sized lenders like Wema Bank Plc dropped plans last month to raise dollar loans to rather sell naira debt locally in smaller tranches. Unity Bank Plc, which missed a Feb. 28 central bank deadline to recapitalize, has been in talks with investors since October, while Diamond Bank Plc started negotiations to sell businesses and issue debt over a year ago.
“We view the Tier 2 banks as potentially challenged,” Exotix Partners LLP analysts Jumai Mohammed and Ronak Gadhia said in a note last month. The lenders seem unable “to weather asset-quality deterioration storms.”
Still, the five-year dollar bonds didn’t come cheap. Lagos-based United Bank for Africa settled on a coupon, or interest paid twice annually, of 7.75 percent. That’s the highest of at least 10 sales of $500 million by emerging-market banks this year from Turkey, Kuwait, Bahrain, South Korea and China. Zenith will pay 7.375 percent on the securities it placed, compared with 6.25 percent on five-year notes sold in April 2014.
Even so, more lenders will issue Eurobonds because they need dollars to offer loans in the U.S. currency or to repay debt, said Lekan Olabode, an analyst at Vetiva Capital Management Ltd. in Lagos. Lome, Togo-based Ecobank Transnational Inc. plans to sell a $400 million, 5-year convertible bond this month, which will be used to refinance debt and provide short-term bridge funding for non-performing loans at its Nigerian unit, its biggest business.
Margin Impact
Access Bank Plc has $350 million of bonds due in July, while Fidelity Bank Plc has to repay $300 million next May. “Any Eurobond issuance from the Tier 2 names will come in relatively more expensive — impacting margins,” Olabode said.
Some banks may use share-price gains to sell equity, although most trade at less than book value, making a rights offering expensive, he said. Local debt also comes at a price, with yields on 5-year government bonds at 16.3 percent.
The Nigerian Stock Exchange Banking Index has advanced 44 percent this year, with United Bank for Africa soaring 99 percent to its highest since January 2014, while Access Bank has climbed 83 percent to a four-year high. Wema has gained less than 2 percent and Skye Bank Plc and Union Bank of Nigeria Plc are up about 10 percent in 2017.
Union Bank, in which former Barclays Plc Chief Executive Officer Bob Diamond’s Atlas Mara Ltd. owns 31 percent, said in November it will sell as much as 50 billion naira ($156 million) in a rights issue. The sale is still scheduled to happen by the end of this quarter, spokeswoman Ogochukwu Ekezie-Ekaidem said on June 8.
Sterling Bank, which announced plans to raise 65 billion naira in Tier 2 capital last July, managed to raise 7.9 billion naira in 2016 at 16.5 percent, according to Chief Financial Officer Abubakar Suleiman. “We don’t think the market conditions are OK to raise it now, so we are waiting,’’ he said.
Without enough capital to back new business and write loans, small lenders risk falling further behind as Nigeria’s economy recovers from last year’s 1.6 percent contraction. The International Monetary Fund forecasts Nigeria will expand 0.8 percent this year as the oil price improves.
“Big banks have a pricing advantage,” said Olabode. “That makes a big difference in size and capacity to do business.”
Additional Information from Bloomberg
By Modupe Gbadeyanka
About N3.6 trillion has been repaid to the Central Bank of Nigeria (CBN) by the Asset Management Corporation of Nigeria (AMCON) since its inception in 2010.
This information was revealed by the chief executive of AMCON, Mr Gbenga Alade, during a media parley to update the press on the activities of the agency.
Mr Alade said at the moment, the organisation still owes the central bank about N3 trillion for toxic assets of banks in the country.
He praised the organisation for its asset recovery drive, stressing that when compared with others across the world, Nigeria has done well.
“It is important to stress that the corporation has done tremendously well, especially when compared to other notable government-owned Asset Management Corporations around the world.
“Based on the balance at purchase, AMCON outperformed other Asset Management Corporations all over the world by achieving over 87 per cent in recoveries despite the unique challenges associated with debt recovery in Nigeria.
“The Malaysian Danaharta, which is adjudged one of the best performing Asset Management Corporation’s, only achieved 58 per cent. The Chinese Asset Management Corporation, despite its stricter laws, achieved just 33 per cent.
“Only the Korean Asset Management Corporation (KAMCO), South Korea, has achieved more recoveries than AMCON, with about 100 per cent. This was due to their brute force with which they chased the obligors.
“Despite KAMCO’s recovery records, the agency is still operational to date with slight realignments in its mandate.
“Other noted Asset Management Corporations that have transitioned into a perpetual institution of the various governments include, China Asset Management Company, Federal Deposit Insurance Corporation (FDIC) USA, and KFW Germany.
“So, gentlemen, without sounding immodest, AMCON has done well, and we will not relent until all the outstanding debts are fully realized,” Mr Alade stated.
On the financial performance of AMCON, he said last year, the firm posted a revenue of N156.25 billion and operating expenses of N29.04 billion, while for the 2025 fiscal year should be a revenue of N215.15 billion and operating expenses of N29.06 billion.
By Modupe Gbadeyanka
One of the non-interest banks in Nigeria, The Alternative Bank (AltBank), has opened a new branch in Effurun, Delta State.
The new office will serve the Edo-Delta region and provide purposeful banking and real financial empowerment for individuals, entrepreneurs, and businesses, a statement from the firm stated.
The lender disclosed that the Effurun branch is a bold move in its mission to reshape banking in Nigeria.
The launch was graced by key dignitaries, including the Ovie of Uvwie Kingdom, Emmanuel Ekemejewa Sideso Abe I; the Chairman of Uvwie Local Government, Anthony O. Ofoni, represented his vice, Andrew Agagbo; and the Special Adviser to the Governor of Delta State on Community Development, Mr Ernest Airoboyi; amongst others.
The Divisional Head for South at The Alternative Bank, Mr Chukwuemeka Agada, emphasised the institution’s commitment to Warri and its surrounding communities.
“By establishing a presence here, we are initiating a transformation in the way banking serves the people of Delta. Our purpose-driven approach ensures that customers’ financial goals are not just met but exceeded,” he stated.
“This branch represents our pledge to empower Warri’s dynamic businesses and families, providing them with the tools to grow without compromise,” Mr Agada added.
“We understand the heartbeat of this community, and we are excited to integrate our bank into the fabric of this dynamic region,” he stated further.
On his part, the representative of the Ovie, Mr Samuel Eshenake, challenged the bank to facilitate development and employment within the Effurun community.
The Regional Head for Edo/Delta at The Alternative Bank, Mr Akanni Owolabi, embraced this challenge, pledging that the bank will work sustainably to drive local commerce.
“At The Alternative Bank, we are committed to being an active partner in the development of Effurun. We see this branch as a catalyst for creating opportunities, driving employment, and supporting the growth of local businesses.
“Our mission is to empower this community, ensuring that every step forward is one of progress, prosperity, and shared success.”
By Aduragbemi Omiyale
A partnership aimed to enable seamless, real-time and secure transactions for cardholders across Africa and the rest of the world has been entered into by Payattitude and PAPSSCARD, the card scheme initiative of the Pan-African Payment & Settlement System (PAPSS).
The collaboration will allow Payattitude cards issued by banks and other deposit-taking institutions to be co-branded with PAPSSCARD, Discover, Diners and Pulse for acceptance across their networks in Nigeria, Africa and worldwide.
As an initiative of the African Export-Import Bank (Afreximbank) and a key financial infrastructure supporting the African Continental Free Trade Area (AfCFTA), the PAPSSCARD scheme will facilitate instant cross-border payments in local currencies.
“This partnership reflects our commitment to cross-enterprise alliances and enabling inclusive, efficient, and borderless payments across Africa and the world
“With Payattitude, Nigerian cardholders and financial institutions can now enjoy the benefits of a Nigerian card that can be used worldwide,” a director at Payattitude, Dr Agada Apochi, said.
The acting chief executive of PAPSSCARD, Mr John Bosco Sebabi, said the aim is “to connect African payment ecosystems, reduce the cost and inefficiencies of cross-border payments, and strengthen African sovereignty over payments infrastructure.
“Collaborating with Payattitude, a key innovator in Nigeria’s payment space, represents a significant step towards a more unified African payment landscape.”
The chief executive of PAPSS, Mr Mike Ogbalu, said, “By bringing together PAPSSCARD’s robust cross-border payment capabilities with Payattitude’s leadership in the Nigerian digital payments, we are taking tangible steps toward building a single African market where individuals and businesses can transact easily and securely, both within and beyond Africa.”
Payattitude is the first-in-kind Nigerian Payment Scheme to pioneer multibank App and USSD Code *569#.
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