Funding growth

The post-banking sector reforms landscape looks promising going by increasing number of planned capital raising by deposit money banks. Interestingly, the pack is being led by middle-tier banks, an indication that apart from deepening our capital market, capacity building will be enhanced. Also, it portends healthy competition as tier one banks will have to earn their premier position moving forward.

Besides, it is an indication that our local banks are really preparing for the emerging opportunities from the power sector privatisation as dollars are being sought to finance gas and other infrastructure projects, having met the required capital adequacy ratio by the Central Bank of Nigeria (CBN).

For instance, Diamond Bank is planning to raise the biggest fund so far this year – as much as $750 million in shares or bonds to fund more projects and raise its capital adequacy ratio, a measure of financial strength, to between 20 percent and 25 percent. The industry requirement by CBN is 15 percent. Fidelity Bank plc is also planning to issue a $350 million Eurobond to finance infrastructure including power and oil and gas industry projects.

Wema Bank plc has got approval of its shareholders to raise N35bn by way of special placement from strategic investors. “The decision to raise capital was in line with the bank’s plans to expand its operations and grow organically into areas that presented strong business opportunities,” explained Segun Oloketuyi, managing director of Wema Bank. Sterling Bank plc has similarly got shareholders’ approval for a N100 billion ($670 million) capital raising to strengthen its market position, shore up its capital base in order to play in the big league of banks at national and international arena.

Considering the good outing so far by the banks that have released their 2012 financials, one can confidently say that the banks have returned to profitability after the industry came near to collapse in a debt crisis in 2008 and 2009. Expectations now should be to rebuild their capital adequacy requirements and risk management capacity so as to enhance their access to both local and foreign capital for active participation in infrastructure financing. This is necessary as the retail market has not really taken off and much of their loan growth is being driven by big infrastructure lending or big projects in the oil and gas industry or the power industry, for which the world seems to be watching with excitement.

Consequently, we expect banks to position and avail themselves of opportunities from the privatisation of generating and distribution companies (Gencos and Discos) in which private investors have staked as much as 60 percent.

Bankers and investors are not the only beneficiaries. Experts in the different fields that are party to the deals are seeing varied demand for their services. Such service providers are consultants, law firms and human resource companies. Hopefully, sugar refineries, rice mills, packaging companies, fertiliser plants and light manufacturing will generate the next wave of employment opportunities.