Vice President Namadi Sambo
By Obinna Chima
As banks continued to jostle to finance the acquisition of the power assets recently privatised by the National Council on Privatisation (NCP), Renaissance Capital Limited (RenCap) has said that banks are likely to work out syndicated loans to finance the assets.
In fact, RenCap declared that the tier-2 banks did not have sufficient balance sheets to exclusively fund such large-scale power projects because of the existing single-obligor limit of 20 per cent.
Tier-2 banks are so classified based on the strength of their capital and assets. First Bank, Guaranty Trust Bank, Zenith Bank, UBA and Access are in the category of tier-1 banks.
The financial advisory firm stated this in a report titled: “Nigerian Banks -All eyes on Fourth Quarter 2012 (4Q12),” made available to THISDAY.
THISDAY had reported that since the NCP unveiled the 14 companies selected as preferred bidders for the generation and distribution companies under the power privatisation programme, banks in the country have been in hot pursuit of the prospective investors to finance the acquisition of the power assets.
Investigations showed that nearly all the banks, led by First Bank of Nigeria Plc (FBN), Zenith Bank Plc, United Bank for Africa Plc (UBA), Fidelity Bank Plc and Skye Bank Plc, had been wooing the bidders and offering them mouth-watering proposals to fund their acquisitions.
But RenCap said: “The tier-2-banks do not have sufficiently large balance sheets to fund large-scale power projects, given the single-obligor limit of 20 per cent. They are therefore likely to pursue syndicated loans. However, we think this is unlikely to deter some of the banks from aggressively growing their loan books – there is plenty of demand for credit on a smaller scale. The issue for us will be whether this growth is being achieved at the expense of quality.”
It noted that banks’ non-performing loans (NPL) ratios in the first nine months of 2012 were within the expected range, except for United Bank of Africa Plc (UBA), Fidelity and Stanbic IBTC. According to the report, other banks reported NPL ratios below six per cent.
“We believe there is unlikely to be a repeat of fourth quarter 2011, when large write-offs were taken in the final dash before the Asset Management Corporation of Nigeria (AMCON) window closed.
“Nevertheless, fourth quarter 2012 may still result in upward revisions to NPL ratios, provisions and hence impairment expenses when auditors have had a chance to review the numbers. For those banks that have already published their audited interim results, such as GTBank and Access Bank, we would expect the scale of any revisions to be lower.
“For others, which may be going through a full IFRS-based audit for the first time, we could see more significant restatements to numbers released during the year. We have some reservations about the quality of IFRS numbers published by some of the banks this year – the revisions have already been significant, while the explanations and justifications have not always been easy to follow,” it added.
Commenting on the performance of banking stocks on the Nigerian Stock Exchange (NSE), RenCap pointed out that banks had recorded strong year-to-date performance generally, with all the banks except FCMB and Stanbic IBTC in positive territory.