Wednesday, June 23, 2021

    Nigerian Banks’ Near-Term Credit Risks Ease

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    Godwin Okafor
    Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

    The outlook for Nigerian banks’ credit fundamentals has stabilised since the initial economic shock from the pandemic,

    Fitch Ratings says in a new report. Profitability and capitalisation have held up and asset-quality deterioration is contained, at least for now.

    That said, all Nigerian banks’ ratings are in the highly speculative ‘B’ category, constrained by the weak operating environment and Nigeria’s ‘B’/Stable sovereign rating.

    Fitch removed most Nigerian bank ratings from Rating Watch Negative, placed at the onset of the crisis, by October 2020. This reflected our view that near-term risks to banks were receding as uncertainty surrounding the extent of the economic fallout began to ease.

    Yields on Nigerian bank Eurobonds have been falling since the global market sell-off in March and April 2020. This is on the back of the banks’ reasonably stable credit fundamentals and their fairly resilient performance through the pandemic.

    Two Nigerian banks have issued five-year senior unsecured bonds on the Eurobond market in recent months. In November 2020, First Bank of Nigeria (B-/Negative) issued USD350 million with a coupon of 8.625%. In February 2021, Ecobank Nigeria (B-/Stable) issued USD300 million with a 7.125% coupon – the lowest for a five-year issuance by a Nigerian bank since 2013.

    Both issuances were significantly oversubscribed – a reflection of investor appetite for the yields available on bank debt in emerging and frontier markets, and the scarcity of issuance from the region.

    Strong investor demand is likely to persist due to favourable global financing conditions, supported by accommodative monetary policy in developed markets even though US Treasury yields are rising. We expect more Nigerian banks to tap the Eurobond market in 2021-2022 as local-currency borrowing costs increase due to higher policy rates to counter inflation and exchange-rate pressures.

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