Liquidity crisis: Mergers hang in the air as more banks come under CBN scrutiny

By ODUNEWU SEGUN

WITH about 45% of Nigerian banks loan denominated in dollars, the recent devaluations of the naira may have increased liabilities for some banks and dragged down the value of their capital relative to loans.

Moreover, the recent takeover of the management of Skye Bank by the Central Bank of Nigeria over inadequate capital ratio has also brought to the fore the liquidity capital ratio plaguing the banks. Financial experts in the country have argued that consolidation of the country’s 21 banks may actually be the solution to the current crisis in the sector.

National Daily takes a look at some major deals that could shake up the sector and put the industry on a stronger footing, according to financial experts.

First on the list is Stanbic IBTC, a second tier Nigerian lender, and a subsidiary of South Africa’s Standard Bank in a possible deal with embattled Skye Bank.

With a market capitalization of N158 billion nearly 13 times that of Skye Banks N12 billion will be catapulted to a tier one bank if it merged with Skye Bank.

While the Stanbic IBTC’s most likely currency to do a deal (its equity) is solid and trading above book value, issues around the FRC and uncertainty over digesting what is in effect 2 banks (Mainstreet and Skye pre its Mainstreet acquisition), could depress shares if a deal is announced potentially making it more expensive for shareholders.

Analysts at Renaissance Capital say “the fundamentals appear intact…We expect the bank’s trading income to receive a boost over time from the liberalisation of FX markets.

ALSO SEE: Skye Bank in distress as CBN announces take over

Management thinks assets under management (AuM) and profits before tax PBT growth in the wealth business should be c. 10 percent in 2016 as a base case.”

Other possible mergers, National Daily gathered may also involve Nigeria’s largest lender by value, Guaranty Trust Bank with a market capitalization of N679.8 billion and Diamond Bank.

Diamond Bank is a second tier lender with market capitalization of N46.5 billion with a huge portfolio of Non- Performing Loan hanging on its neck and a capital adequacy ratio of 16.2 per cent at the end of the 1Q as against the 15 per cent regulatory minimum.

Analyst argued that such a deal will help GTB further diversify its income stream, making it the biggest if it combined its total assets of N2.5 trillion as at YE 2015 with Diamond Banks N1.7 trillion. Diamond Bank management may also not look too favorably to a deal, due to their own ambitions ideas on where to take the bank.

United Bank for Africa (UBA) and Union Bank is another possible deal. UBA had a market capitalization of N161 billion compared to Union Banks N82 billion on Friday.

It also had a significant net long FX positions as at Q1, 2016 giving the lender capital and asset quality buffers, following the recent naira devaluation. On the other hand Union Bank shares dropped about 5 percent to their lowest levels in almost two months

A takeover, according to analysts would give UBA’s management led by Tony Elumelu a bigger footprint in Nigeria and a larger assets base as it aims to conquer the rest of Africa.
However, Union Bank which just emerged from a restructuring of its own following a CBN bailout may not be too keen to sell itself to UBA without a major push by the Nigerian authorities.

There are also issues around the firepower of UBA, which currently trades well below book value per share. Union Bank also has a major investor in Atlas Mara who have the financial muscle to fight off any merger deal.

Also, Ecobank Transnational Inc. which has a primary listing in Lome Togo also trades on the Nigerian Stock Exchange (NSE) as Ecobank Nigeria recently outlined plans to close some of its African subsidiaries and focus on the larger more profitable ones.

Buying Wema Bank would be a continuation of the banks inorganic growth in Nigeria following acquisition of Oceanic Bank in 2011.

But some of the road blocks to any deals may include the fact that Ecobank has 2 major shareholders in Nedbank Group of South Africa and Qatar National Bank who could torpedo any new takeovers and potential dilution of shares as well as decision of ETI CEO Ade Adeyemi last year to shun acquisitions for the moment and concentrate on boosting shareholder returns.”

As for First Bank Nigeria Holdings, financial experts disclosed that the bank, considered as Nigeria’s biggest bank by assets, may come under closer scrutiny from the Central Bank because of its soaring non-performing loans which is above 20 percent Q1.

ALSO SEE: Loans: CBN rolls out new directives to banks on collateral registration

The Bank may also be able to plug any capital holes from internal earnings by cutting dividends.

Meanwhile, the Central Bank of Nigeria (CBN) has disclosed that it is monitoring some commercial lenders for liquidity after Skye Bank failed to meet prudential ratios, prompting it to replace its top executives this week.

The Director, Banking Supervision, CBN, Mrs. Tokunbo Martins, said “one or two” commercial banks had failed liquidity tests but they were not in the same situation as Skye.“ We have our eyes on one or two other banks right now but they are not in a state of distress. We have our eyes on all banks,” she said in a recent interview.

Last year, the regulator gave three commercial banks until June 2016 to recapitalise after they failed to hit a minimum capital adequacy rate of 10 per cent.