(Ecofin Agency) – Solutions are announced to face the risk of default on a loan previously taken out. However, they are temporary and subject to factors that do not depend on the management of bank officials.
In a communication to investors, consulted by theEcofin Agency, It is revealed that an agreement was reached on Monday September 16, 2024 between the Nigerian subsidiary of the Ecobank group and the creditors of its Eurobond of 300 million dollars, repayable in April 2026.
One of the main guarantees of this loan required that the bank’s long-term resources represent at least 10% of all credits granted to its customers. However, as of June 30, 2024, this balance has been disrupted, mainly due to structural factors. A significant portion of Ecobank Nigeria’s credits are denominated in US dollars, while its equity is in naira. With the rapid depreciation of the Nigerian currency from 951.8 to the dollar at the start of the year to around 1628.5 by the end of July 2024, the pressure on the bank’s capital base has intensified.
Ecobank Nigeria now has until September 2025 to restore this balance, necessary to maintain creditors’ confidence. Although technically manageable, this challenge remains sensitive given the continuing economic uncertainty in Nigeria. Two factors will be closely monitored by the pan-African bank: the evolution of oil prices and American monetary policy. A fall in oil prices could increase the risks of further devaluation of the naira, while US monetary policy, which influences the value of the dollar, could also weigh on debt management.
To remedy the situation, Ecobank Nigeria is considering several measures. The Central Bank of Nigeria has already required banks to increase their capital to N200 billion, and for Ecobank Nigeria this translates into a need for an additional N7 billion. In response, Lomé-based parent company ETI injected $10 million, or about 16.3 billion naira, pending regulatory approval. This injection should help alleviate immediate pressures.
Additionally, Ecobank Nigeria has obtained authorization to issue $200 million in bonds, divided into four tranches of $50 million, the first of which is scheduled for March 2024. At the same time, the bank is exploring the possibility of recovering in anticipation of an investment of 200 million dollars that it made for the benefit of ETI Finance, its subsidiary. This would enable it to reduce its risk exposure and its capital requirements.
However, structural challenges remain. It has been five years since Ecobank Nigeria has paid dividends, and the current situation leaves little chance of this changing in 2024. The bank, which represents 17.9% of the group’s outstanding loans, remains heavily concentrated on the downstream oil sector, which is particularly risky.
While creditors and the Central Bank of Nigeria have shown understanding, Ecobank Transnational Incorporated has suffered an impact on the international scene. During its third bond issue on international markets, ETI managed to raise the requested $390 million, but had to offer a yield of 10.37%, in a context of falling key rates in the United States, Europe and in China. The arrangement costs of this transaction amounted to $10 million, making up the $400 million transaction. Also, interest will be paid twice a year on the remaining amount to be repaid.
These funds will make it possible to refinance a previous loan of $350 million, with a surplus of $40 million. However, the group will have to continue to monitor its own funds in other countries such as Kenya, Uganda and Guinea. This recent bond issue is part of a broader authorization, allowing ETI to raise an additional $200 million on international markets.
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