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Nigeria’s too big to fail bank rules spur bond sale rush


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Nigeria

Septembwer.03.2014

Nigerian lenders are gearing up to sell the most debt in four years to bolster cash reserves, taking advantage of a drop in borrowing costs before the central bank increases how much capital they need to hold, reports Bloomberg.

Banks may raise as much as $2.5 billion this year compared with $2 billion in 2013, according to FBN Capital, the investment-banking unit of Nigeria’s largest bank by assets, FBN Holdings Plc. International debt sales are becoming more common as yields on Nigerian Eurobonds due July 2023 declined 96 basis points this year through Monday to a record. That compares with an average 35 basis-point drop in emerging-market yields, according to Bloomberg indexes.

The central bank last month changed the way lenders calculate capital buffers to align the country with global standards and increase their ability to withstand losses five years after saving the industry from collapse. The regulator ordered Nigerian banks it considered too big to fail to boost minimum capital ratios to 16 percent last year, compared with 10.5 percent for South African lenders, which control most of the continent’s banking assets.

“Capital adequacy for many of the banks will be close to the minimum” once the changes are taken into account, Mike Nwanolue, an analyst at Lagos-based Greenwich Trust Group Ltd., said by phone on August 28. “The capital adequacy levels for banks are expected to drop by about 3 percent across board, which will entail raising core capital.”

The central bank removed some assets lenders can count as capital in preparation for the implementation of Basel II and III, while limiting Tier 2 capital to 33 percent of Tier 1 capital, according to an August 5 circular from the regulator. Minimum capital requirements for lenders with operations outside the country were kept at 15 percent and at 10 percent for those with interests only in Nigeria.

The changes will shave 100 to 400 basis points off the capital adequacy ratios of most banks, Adesoji Solanke, an analyst at Renaissance Capital in Lagos, said in an August 11 note.

Wema Bank Plc, which focuses on the South West region, will be most impacted among smaller lenders, and United Bank of Africa Plc of the larger ones, Exotix Africa Equity Research analysts Ronak Gadhia and Kato Mukuru said in an e-mailed note on August 7. Wema’s capital adequacy ratio will slip to 17.5 percent this year from 26.7 percent in 2013, and UBA’s to 17 percent from 22.6 percent, Exotix said.

“Banks want to show their capacity to protect depositors and absorb losses,” Sewa Wusu, an analyst at Lagos-based Sterling Capital Markets Ltd., said by phone from Lagos on August 29. “A capital adequacy of over 20 percent is ideal.”

Article Credit: Businessdayonline

Updated 3 Years ago
 

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Tags:     FBN Holdings Plc     Mike Nwanolue     Adesoji Solanke     Ronak Gadhia     Kato Mukuru

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