Tier 2 banks hit by cash crunch amidst currency shortages

  • Desperate for investors to raise capital

By Odunewu Segun

Tier 2 lenders in the country are in their worst season, facing crippling currency shortages as well as battling rising levels of non-performing loans (NPLs) and capital buffers near regulatory minimums, National Daily has gathered.

Without 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 per cent contraction

National Daily gathered that while bigger banks like the UBA raised $500 million in its first Eurobond sale on June 1 at yields below initial guidance, and GTB, so flush with cash it plans to repay its $400 million of bonds when they become due in 2018, small- and mid-sized lenders like Wema Bank Plc dropped plans last month to raise dollar loans to rather sell naira debt locally in smaller tranches.

Similarly, Unity Bank Plc, which missed a February 28 Central Bank deadline to recapitalise, 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”.

At the Nigerian Stock Exchange (NSE), National Daily gathered that the story is not different. While the Index has advanced 44 per cent this year, with UBA soaring 99 per cent to its highest since January 2014, and Access Bank climbing more than 80 per cent to a four-year high, the Tier 2 banks have remained at the bottom.

Wema has gained less than 2 per cent and Skye Bank and Union Bank of Nigeria Plc are up about 10 per cent in 2017. Union Bank, in which former Barclays Plc Chief Executive Officer Bob Diamond’s Atlas Mara Ltd. owns 31 per cent, said in November it will sell as much as N50 billion in a rights issue scheduled to take place by the end of this quarter.

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Sterling Bank, which announced plans to raise N65 billion in Tier 2 capital last July, managed to raise N7.9 billion in 2016 at 16.5 per cent, and is waiting for market conditions to improve before another issuance, according to Chief Financial Officer Abubakar Suleiman.

With difficulties in finding investors to raise capitals, the gap between the Tier 1 and Tier 2 banks has been widening in profitability and balance-sheet size, and the trend may continue beyond 2018, experts argued.