* Nigerian firms issued $5 billion hard currency bonds since 2007
* Banks' foreign currency exposure at $10 billion-analyst
* Naira devaluation should not endanger repayments
Nigerian banks' overseas borrowing bonanza looks to be over in the wake of a dramatic currency devaluation this week, but while risks are rising, repaying existing debt should not be a problem for most.
Companies in Africa's largest economy have rushed in recent years to take advantage of rock-bottom global borrowing costs and investors' hunger for yield, selling some $5 billion in hard currency bonds since 2007, according to Thomson Reuters data.
Of this more than $2 billion was raised this year by financial institutions shoring up their balance sheets, Standard Chartered estimates.
But storm clouds have gathered over Africa's top oil producer. Sub-$80 oil prices due to stuttering global growth and an ever strengthening greenback have weighed on the naira for weeks, finally forcing the central bank to devalue it by 8 percent on Tuesday.
The currency's woes have raised some fear about the impact on the balance sheets of companies and banks and have been reflected in some of Nigeria's top banks' Eurobonds.
First Bank Holdings 7-year Eurobond issued in June traded at 97.27 after hitting a record low of 96.85 on Monday. Meanwhile Access Bank's 7-year Eurobond issued the same month traded at a record low of 97.89
Both had traded above face value of 100 almost until mid-October.
Samir Gadio, Standard Chartered's Head of Africa Strategy FICC Research estimates Nigerian banks' total foreign currency exposure tallied up to as much as $10 billion when adding syndicated loans and currency swaps to the $3.6 billion total outstanding in Eurobonds.
"This makes me look at Nigeria's vulnerability from a whole new angle," he said.
"The transparency and supervision of the foreign currency exposure of the banks needs to improve, because there is a risk that has been overlooked but that will come to the fore in the future."
Ratings agency Fitch also pointed to the naira devaluation potentially spelling trouble for firms' ability to service the foreign currency debt they owed Nigerian lenders, with a knock-on effect on banks' asset quality.
"Inflationary pressures from the devaluation could also affect consumer disposable income and banks' retail loans," Fitch said in a note published on Thursday
Yet few doubt the banks' ability to repay the debt.
Richard Segal, emerging markets analyst at Jefferies, noted that Nigerian bank debt had performed far worse than the sovereign as the naira weakened but he added:
"Neither the ability to pay of the banks, nor the capacity of the government to support them, has declined significantly."
One reason is that many Nigerian banks lend in foreign currency, predominantly U.S. dollars, to major companies active in the dominant oil, gas and power sectors.
This has boosted banks' assets and loans denominated in currencies other than naira.
"A lot of the balance sheets of these Nigerian banks are already dollarised," said Kato Mukuru, head of equities research at brokerage Exotix.
This offers comfort on the repayment side, he added.
One thing is for sure: abundant Nigerian Eurobond issuance is unlikely to continue in the same volume as before. The central bank this week also imposed tighter restrictions on banks' foreign currency borrowing.
"It is not the same environment...the whole issuance of the eurobond is likely to recede," Standard Chartered's Gadio said.
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Nigerian banks' overseas borrowing bonanza looks to be over in the wake of a dramatic currency devaluation this week, but while risks are rising, repaying existing debt should not be a problem for most.
Companies in Africa's largest economy have rushed in recent years to take advantage of rock-bottom global borrowing costs and investors' hunger for yield, selling some $5 billion in hard currency bonds since 2007, according to Thomson Reuters data.
Of this more than $2 billion was raised this year by financial institutions shoring up their balance sheets, Standard Chartered estimates.
But storm clouds have gathered over Africa's top oil producer. Sub-$80 oil prices due to stuttering global growth and an ever strengthening greenback have weighed on the naira for weeks, finally forcing the central bank to devalue it by 8 percent on Tuesday.
The currency's woes have raised some fear about the impact on the balance sheets of companies and banks and have been reflected in some of Nigeria's top banks' Eurobonds.
First Bank Holdings 7-year Eurobond issued in June traded at 97.27 after hitting a record low of 96.85 on Monday. Meanwhile Access Bank's 7-year Eurobond issued the same month traded at a record low of 97.89
Both had traded above face value of 100 almost until mid-October.
Samir Gadio, Standard Chartered's Head of Africa Strategy FICC Research estimates Nigerian banks' total foreign currency exposure tallied up to as much as $10 billion when adding syndicated loans and currency swaps to the $3.6 billion total outstanding in Eurobonds.
"This makes me look at Nigeria's vulnerability from a whole new angle," he said.
"The transparency and supervision of the foreign currency exposure of the banks needs to improve, because there is a risk that has been overlooked but that will come to the fore in the future."
Ratings agency Fitch also pointed to the naira devaluation potentially spelling trouble for firms' ability to service the foreign currency debt they owed Nigerian lenders, with a knock-on effect on banks' asset quality.
"Inflationary pressures from the devaluation could also affect consumer disposable income and banks' retail loans," Fitch said in a note published on Thursday
Yet few doubt the banks' ability to repay the debt.
Richard Segal, emerging markets analyst at Jefferies, noted that Nigerian bank debt had performed far worse than the sovereign as the naira weakened but he added:
"Neither the ability to pay of the banks, nor the capacity of the government to support them, has declined significantly."
One reason is that many Nigerian banks lend in foreign currency, predominantly U.S. dollars, to major companies active in the dominant oil, gas and power sectors.
This has boosted banks' assets and loans denominated in currencies other than naira.
"A lot of the balance sheets of these Nigerian banks are already dollarised," said Kato Mukuru, head of equities research at brokerage Exotix.
This offers comfort on the repayment side, he added.
One thing is for sure: abundant Nigerian Eurobond issuance is unlikely to continue in the same volume as before. The central bank this week also imposed tighter restrictions on banks' foreign currency borrowing.
"It is not the same environment...the whole issuance of the eurobond is likely to recede," Standard Chartered's Gadio said.
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