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Nigerian banks eye Eurobond recalls as dollar lending opportunity shrinks - BUSINESSDAY

NOVEMBER 07, 2018


For Nigerian banks, finding quality dollar lending opportunities in an economy still recovering from a recession in 2016, is like trying to find a needle in a haystack. The lack of lending opportunities in foreign currency and rising interest rates in the United States- which has made foreign loans more expensive- is forcing the country’s largest banks to either redeem outstanding Eurobonds or recall obligations.

Not a single bank has raised a Eurobond this year, in a sign of shrinking dollar-denominated lending opportunities. “When banks are recalling or redeeming their Eurobonds, it is a signal that there aren’t many dollar lending opportunities in the economy,” said Wale Okunrinboye, head of investment research at Lagos-based Pension Fund, Sigma Pensions. “The oil and gas sector, which accounts for a third of dollar loans on banks’ balance sheets, is not completely out of the woods yet, never mind the rally in oil prices, so there is little appetite for dollar loans and the banks are finding less need for dollars,” Okunrinboye added. 

Guaranty Trust Bank Plc, Nigeria’s largest bank by market capitalisation, on Monday November 5, redeemed its $400 million Eurobond, sidestepping the option to roll over. Zenith Bank Plc, the country’s largest lender by assets also plans to redeem its $500 million Eurobond which matures in April 2019. Diamond Bank Plc is the only other bank with a Eurobond maturing next year but it is unclear if the tier-two lender will opt to redeem its $200 million Eurobond come May 2019. The yield on Zenith Bank’s 6.25% $500 million Eurobond maturing April 22 2019 closed lower at 5.80 percent while its shares listed in Lagos, climbed 0.63 percent to N23.85 Tuesday, according to NSE data. 

The yield on the tier-one lender’s 7.37% $500 million Eurobond maturing 2022 also closed lower at 6.98 percent. Diamond Bank’s 8.75% $200 million Eurobond maturing May 21 2019 closed higher at 14.60 percent while its shares were down 1.7 percent to N1.18. Standard & Poor’s on Tuesday cut the Carlyle-backed lender’s rating to CCC+/C from B-/B, citing pressure on capital and foreign- currency liquidity. Access Bank Plc and First Bank Holdings told analysts in separate investor conference calls last month that they planned to recall some Eurobonds next year. Access has a $400 million Eurobond maturing June 2021 and a $300 million foreign bond maturing October of the same year. 

The latter closed lower at 7.67 percent Tuesday, while yields on the former climbed slightly to 10.52 percent.  Access bank shares were down 1.25 percent to N7.9 Tuesday. First Bank’s 8% $450 million Eurobond maturing July 2021 closed lower at 9.13 percent. The bank’s shares closed 1.4 percent higher. If Access Bank ($700 million) and First Bank ($450 million) recall their Eurobonds, and Zenith bank redeems its $1 billion Eurobond next year, it shaves $2.15 billion off the $3.45 billion total non-sovereign outstanding Eurobonds in Nigeria. Nigerian banks are in a better place after being hammered by the decline in oil prices and production in 2016, which caused oil and gas firms defaulted on loan obligations and non-performing loans to spike.

Oil prices have more than doubled since sliding to a record low of $28 per barrel in 2016 while production volumes are gradually inching up, as militant attacks on oil pipelines in the Niger-delta cool. That has helped the banks’ recover loans that were written off two years ago. The CBN said non-performing loans dropped from 15 percent in 2017 to 12.4 percent as at June 2018, although the figure is still a long way above its 5 percent regulatory threshold.

 

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