Nigeria bank ratings suspended at RenCap

Intercontinental Bank Plc, Oceanic Bank Plc and Union Bank of Nigeria Plc had their ratings suspended at Renaissance Capital after the central bank fired their chiefs and the bourse halted trading of their shares.

Nigeria’s central bank Governor Lamido Sanusi on Aug. 14 dismissed the chief executives of the three banks along with those of Afribank Nigeria Plc and Finbank Plc after an audit found the lenders were in a “grave situation” and their management had acted in a manner “detrimental to the interests of depositors and creditors.” The stock exchange suspended trading in the five banks’ shares yesterday.

“These banks are clearly in the process of transition and we formally reintroduce our investment ratings and target prices when clarity returns,” Renaissance Capital, a Moscow-based brokerage with offices in Africa, wrote in a research report dated today.

RenCap also upgraded its recommendation on Zenith Bank Ltd., Nigeria’s second-biggest lender by market value, and reiterated its “buy” recommendations on eight other lenders including the country’s largest, First Bank of Nigeria Plc. Those banks either passed or are likely to survive the audit, which RenCap sees as part of a central bank plan to prepare the banking industry for international competition, the note said.

Banks in Nigeria, Africa’s second-biggest oil producer, may have as much as $10 billion of toxic assets, Eurasia Group, a New York-based research company, said in May. The bad debt is partly the result of at least 1 trillion naira ($6.3 billion) of margin loans used to buy shares as they soared 13-fold since 2000 until plunging last year, according to Bank of America Corp.

Foreign Competition

“The real match will be between Nigeria’s banks and their global retail counterparts for control of the Sub-Sahara African banking landscape,” Lagos-based RenCap analyst Kato Mukuru wrote in the note. “We believe the banks that have failed the audit and the ones that may fail the audit can partner with those that have passed or seek international parents.”

Eight foreign investors are ready to take control of the five commercial banks whose chief executive officers were fired on Aug. 14, the Lagos-based Guardian reported yesterday, without saying where it got the information.

The four biggest banks hold 42 percent of the industry’s assets in Nigeria, compared with 84 percent held by the four largest in South Africa, Mukuru wrote.

When firing the chief executives, Sanusi also announced that 400 billion naira would be injected into the lenders to ensure they meet minimum capital requirements. The dismals were aimed at preventing a “freefall” in the value of their stocks, Sanusi said.

Zenith Upgrade

RenCap previously rated Intercontinental and Oceanic as “hold” and Union Bank of Nigeria as “sell.”

The Central Bank of Nigeria may need to inject 1 trillion naira into some of the five banks whose chief executive officers were fired last week, ThisDay newspaper said, without citing anyone.

While Zenith is yet to pass the audit, Rencap is “confident” it will do so and raised its recommendation on the stock to “buy” from “hold” with its price estimate increased to 20 naira from 17 naira.

Zenith, along with First Bank, Access Bank Nigeria Plc, First City Monument Bank Plc, Guaranty Trust Bank Plc and United Bank for Africa Plc are RenCap’s top picks because they “show up well” in terms of the central bank’s requirements of transparency and liquidity, Mukuru wrote.

Source: Bloomberg