First City Monument Bank Plc is the first bank to shore up its capital this year as the bank raised N5.1 billion through bond sales last week just as the Central Bank of Nigeria also raised N400 billion through the sales of Treasury Bills.
Although the amount raised by FCMB was lower than it initially planned, the seven-year bond was issued by way of a book-building with Standard Chartered Bank, local investment bank Chapel Hill Denham and FCMB Capital Markets as book runners at an interest rate coupon of 17.25 percent. The offer was fully subscribed, advisers to the bond sales said in a statement.
FCMB, last year said it wanted to raise funds to strengthen its capital base but it halved the amount it planned to raise to N7.5 billion in debt after announcing a bond sale of up to N15 billion three months earlier.
More Nigerian lenders are expected to raise fresh capital this year or sell some assets to boost capital ratios, after low oil prices created dollar shortages and weakened the naira leading to a pile-up of non-performing loans.
Managing Director and Chief Executive of FCMB, Ladi Balogun had last year said then the bank was undertaking the capital raising to provide an additional cushion, after it closed some branches and slowed loan growth to conserve its capital, which was close to the regulatory limit of 15 percent of assets at mid-year.
The N400 billion Treasury Bills sales by the apex bank led to liquidity squeeze in the market and raising interbank lending rates to 12 per cent. Traders said the apex bank sold N82 billion in 181-day Treasury bills at 18 percent and N309 billion at 18.6 percent, mopping up liquidity from the money market and pushing up the cost of borrowing among commercial banks.
Traders said some major placers quoted about 20 percent for overnight placement, but most takers are not willing to borrow at that rate. Markets had opened on Thursday with a surplus liquidity of about N467 billion due to an injection of matured Treasury bills until the central bank later debited banks for the purchases of N302.4 billion in primary market Treasury bills.
Traders said the central bank on Friday further moved to reduce liquidity with the sale of open market operations bills, which fetched returns above the inflation rate. Annual inflation in Nigeria hit 18.55 percent in December, the 11th straight monthly rise to a more than 11-year high.
Nigeria has been issuing bonds at yields below inflation, making it difficult for corporates to raise debt, as the government increases borrowing to try to spend its way out of the country’s first recession in 25 years.