FG’s Higher Interest Borrowings Raise Banks’ Foreign Debt Obligations

By Nse Anthony-Uko

(Sundiata Finance) — Commercial Banks interest expenses on foreign borrowing and debt issued soared on the back of increased federal government borrowing through Treasury Bills and Bond to finance the 2017 budget.

Analysts attributed the growth in interest expenses on banks borrowing from foreign banks and debt issued to unchanged 14 per cent Monetary Policy Rate of the Central Bank of Nigeria (CBN).

The Chief Finance Officer, Wema Bank Plc, Mr. Tunde Mabawonku, attributed the soar in banks’ interest expenses to high rates driven by FGN borrowing to finance infrastructure in the country.

He said federal government 18 per cent borrowing on Treasury Bills (T-Bills) and 13 per cent saving bond borrowing are expected to further increase banks’ interest expenses on foreign borrowing and debt issued.

According to him, the increased interest rates on banks’ foreign borrowing might cause lower margins and lower profit.

The cumulative total interest expenses of the seven lenders borrowing in nine months of 2017, rose significantly by 69 per cent to N143 billion from N84.5 billion in prior nine months of 2016.

The breakdown of the data showed that Zenith Bank, the second largest lender by market cap, recorded 25 per cent increase on interest expenses on borrowing to N33.3 billion in nine months of 2017 from N26.7 billion reported in nine months ended September 30, 2016.

Zenith Bank’s total borrowing hits N378.75 billion from N263.1 billion reported in 2016.

Access Bank’s interest expenses from debt securities issued increased by 331 per cent to N28.5 billion from N6.6 billion in nine months of 2016 while FBN Holdings interest expenses on borrowing closed the period under review at N16.98 billion from N13.86 billion.

United Bank for Africa (UBA)’s interest expenses from borrowing spiked by 233 per cent to N15.7 billion from N4.7 billion while the lender’s borrowing in nine months gained 63 per cent to N423.9 billion from N259.9 billion reported in full year of 2016.

Others are ETI with 49.3 per cent increase on foreign borrowing to N27.9 billion in nine months of 2017 from N18.7 billion, followed by Diamond Bank Plc that reported N9.36 billion on its borrowing in nine months ended September 2017 as against N3.2 billion reported in nine months ended September 30, 2016.

In addition, Fidelity Bank Plc’s interest expenses gained 1.4 per cent to N10.9 billion from N10.75 billion.

Also commenting, the Managing Director, Enterprises Stockbrokers Plc, Mr. Rotimi Fakayejo, said “the impact of cost of funds increased on banks’ borrowing because of T-Bills yields attractiveness that was almost 20-21 per cent a time.

“We had scarcity in the system and funds became scare. The only alternative that banks had was to increase the cost of funds which impacted on their foreign borrowing and debt issuance.”

In 2017, three of the above banks, Zenith Bank, UBA and Access Bank have borrowed from international capital markets.

Fitch Ratings, a London based credit rating agency said, Zenith Bank Plc, United Bank for Africa Plc (UBA), Access Bank Plc and Fidelity Bank Plc Eurobond offers mark a small step toward reducing maturity mismatches between foreign-currency (FC) assets and liabilities.

Analysts at Fitch said, the four banks’ Eurobond offer is a credit positive as it lessens FC liquidity risk, but the impact will be modest as the new bond issuances are small relative to total term FC lending.

According to Fitch, “Nigerian banks are infrequent issuers on the international capital markets, but three leading banks with deposit market shares near or above 10per cent have issued medium-term Eurobonds since fourth quarter of 2016 (Zenith Bank: $500 million; United Bank For Africa: $500 million; Access Bank: $300 million).

“This week, Fidelity Bank, a smaller bank with a five per cent deposit share, issued $400 million.

“We think more banks may follow. Outstanding FC bonds issued by banks totalled $4 billion at end-June 2017, the bulk of which is in Eurobonds.

“Renewed interest from international investors seeking yield has enabled several banks to issue Eurobonds since late 2016, for the first time since 2014, albeit at higher yields following rating downgrades in the intervening period. In most cases, the issuance will boost FC funding rather than simply refinance maturing FC debt.”

Available data from the CBN shows the federal government via the CBN has sold about N3.1 trillion in T-bills between January 2017 and July this year.

Government borrowing has sky-rocketed this year as oil revenues dipped and the country strives to dig out of its greatest economic crisis in over two decades.

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