There are indications that four Nigerian banks: FirstBank, Guaranty Trust, Diamond Bank and Access Bank are reducing their appetite to lend and borrow in US$, with plans to redeem $1.3bn Eurobonds they issued ahead of maturities due to unfavourable economic climate.
According to a report by Bloomberg on Tuesday, while Access Bank is redeeming its $400m 2021 bond two years earlier than maturity; Diamond Bank has assured that it would repay its $200m debt when it matures in May next year; just as GTB will not refinance its $400m Eurobond. It blames the lack of lending opportunities; while FirstBank is reconsidering whether to redeem its 2019 callable bond, after repaying $300m of debt in 2017.
Also, Fidelity Bank Plc issued $400m of five-year Eurobonds late last year at 10.75%, at the time the most expensive debt issued by an emerging market before the U.S. started tightening rates. Fidelity was the third Nigerian lender to tap the market in 2018 after United Bank for Africa Plc and Zenith Bank Plc issued $1 billion of bonds between them.
Reacting in a tweet via is personal twitter handle, Mustafa Chike-Obi, founding chief executive of the Asset Management Corporation of Nigeria (AMCON) applauded the banks’ decision, describing it as “smart.”
“I guess the banks believe the naira is overvalued,” he wrote, lamenting that the Federal Government “is plunging deeper into shark infested waters.”
Worse still, according to Bloomberg, is the fact that Brent crude prices are hitting new lows heavily impacting Nigeria’s earnings and forex the banks need to fund deals.
The banks also fear the possibility of currency devaluation after next year’s general elections which begin in February at a time the nation’s loans have seen an unprecedented surge.
“The opportunities to deploy dollars and earn risk-adjusted returns have reduced because lending opportunities to the oil and gas sector dried up and pressure on the central bank to defend the naira also waned,” Bloomberg quoted Bunmi Asaolu, a banking analyst at Lagos-based FBNQuest as saying.
Banks, he believes, will only return to issuing Eurobonds if there is a “sustained high oil-price environment for maybe two years.”
Already, Access Bank sees the Naira at between N361 and N364/US$, even as its Managing Director, Herbert Wigwe, told a conference call in October of a possible 10% devaluation in the long term.
Banks that provided loans near, or at the peak, in oil prices “may have to rethink that strategy,” said Akinbamidele Akintola, a Lagos-based equity analyst with Stanbic IBTC Stockbrokers.
There has been only a slight improvement in troubled credit. Non-performing loans stood at 12.5% at the end of June, down from 14.8% at the end of 2017, according to the Central Bank of Nigeria.
Continuing, Akintola explained: “If, for example, a bank raises money at 8%, it has to deploy it at 12% so it can make a margin. If the bank cannot find any opportunities for the funds it has raised, then there is no point of it sitting on money it doesn’t need.”