Nigeria Banks Find Raising Cash ‘Tough’ in Shrinking Economy

LAGOS (Capital Markets in Africa) – Nigerian banks are finding it difficult to raise capital as a shrinking economy cuts revenue and deters investors, the industry’s regulator said.

“It’s been tough,” Umaru Ibrahim, managing director of the Nigerian Deposit Insurance Corp., said in an interview in the southwestern city of Abeokuta on Tuesday. Banks require “adequate capital that would help them cushion any adverse effect of loan defaults or losses,” he said.

Ibrahim’s comments come as Access Bank Plc, the country’s fourth-largest lender by assets, starts marketing the first sale of Eurobonds from Nigeria in almost two years. Africa’s most populous nation is struggling to cope with oil prices that have more than halved since 2014, curbing the biggest source of government income. The economy is mired in a recession as it battles the fallout of an almost 16-month long currency peg that dried up dollar supplies, crippled output and hampered the ability of companies to service their debts.

The NDIC and the central bank are finalizing the findings of a periodic review of the country’s banks to determine the health of the industry and whether they are sticking to minimum capital and liquidity levels, Ibrahim said.

No Pretending
“Let us not pretend there are no issues,’’ he said. “Nigerian banks are challenged like all of us in the sense that they will now have to do everything to weather the storm. They have to become more creative to mobilize deposits.”

Nigeria’s central bank said in July “a few” banks breached regulations on capital adequacy after it dismissed the board of Skye Bank Plc, the nation’s worst-performing bank stock. Non-performing loans in the industry may increase to 12.1 percent in 2016 from 4.9 percent this year, mainly because banks have high credit-concentration risks in the oil and gas industry, Lagos-based Afrinvest West Africa Ltd. said in a report this month.

“The economic slowdown has clearly taken its toll on bank fundamentals and things may get worse before we see a meaningful recovery,’’ Tolu Alamutu, an analyst at London-based Exotix Partners LLP, said in note. “In most cases, asset quality and capital metrics are weaker than at the start of the year.’’

Lenders need to assist customers who are struggling to repay loans, Ibrahim said. “They have to support their customers through restructuring of their loans to give them breathing space, given the experience that we are all having,” he said.

The Nigerian Stock Exchange Banking Index, which measures the performance of the country’s biggest lenders, rose 0.1 percent to 280.54 at 2:25 p.m. in Lagos.

Source: Bloomberg Business News