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 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.”
By Adedapo Adesanya
The International Finance Corporation (IFC) and Goldman Sachs have announced a new partnership with African banks, including Nigeria’s Zenith Bank and Stanbic IBTC Nigeria to support the Goldman Sachs 10,000 Women initiative, a joint programme launched in 2008 to provide access to capital and training for women entrepreneurs globally.
The two Nigerian banks are part of nine financial institutions from across Africa which have agreed to join the 10,000 Women initiative committing to leverage the business education and skills tools the programme provides to create more opportunities for women entrepreneurs across the continent by providing access to business education.
Others banks include Stanbic Bank Kenya, Ecobank Kenya, Ecobank Cote d’Ivoire, Equity Bank Group, Banco Millenium Atlantico – Angola, Baobab Group, and Orange Bank.
Speaking on this, Ms Charlotte Keenan, Managing Director at Goldman Sachs said – “10,000 Women has had a powerful impact to date, but we know that there are more women to reach and more potential to be realized.
“We are delighted to partner with IFC to supercharge the growth of women-owned businesses across Africa, and mainstream lending to female business leaders. We remain committed to supporting entrepreneurs with the access to education and capital that they need to scale.”
Since 2008, the 10,000 Women initiative has provided access to capital and business training to more than 200,000 women in 150 countries.
“This expanded initiative marks a significant step forward in creating equitable economic opportunities for women in Africa, enabling them to build stronger, more resilient businesses and to realize their entrepreneurial goals,” said Ms Nathalie Kouassi Akon, IFC’s Global Director for Gender and Economic Inclusion.
Goldman Sachs’ 10,000 Women initiative complements the Women Entrepreneurs Opportunity Facility (WEOF), launched in 2014 by Goldman Sachs and IFC as the first-of-its-kind global facility dedicated to expanding access to capital for women entrepreneurs in emerging markets.
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