Ecobank Nigeria is considering raising additional capital in order to boost its tier-1 capital.
The subsidiary of Ecobank Transnational Incorporated (ETI) recently raised $250 million in tier-2 capital, thereby lifting its capital adequacy ratio (CAR) to 16.5 per cent.
However, under Basel II and III, the bank’s CAR dropped to 14.5 per cent, further highlighting the need for more capital to support growth.
Ecobank Nigeria’s total capital adequacy ratio at the end of the first half of 2014 stood at 13.3 per cent, which most analysts viewed as light given the bank’s scale and recent categorisation as a systemically important bank by the Central Bank of Nigeria (CBN) draft guidelines.
“Considering the Central Bank of Nigeria’ (CBN’s) preference for tier-1 capital for a bank of this scale, we think the subsidiary needs a tier-1 capital injection,” Banking Analyst at Renaissance Capital, Adesoji Solanke, said.
In addition to Nigeria, ETI also plan to inject additional capital into its East African operations, where it quoted Kenya as having a CAR of 12.2 per cent, which is below the Central Bank of Kenya’s 14.5 per cent minimum requirement.
Ecobank expects South Africa’s Nedbank to convert a $285 million loan to shares in the Lome-based bank before the end of the year.
Ecobank’s chief executive, Albert Essien said he was confident Nedbank would exercise the conversion option and also top up the conversion amount with $206 million to give it a 20 per cent stake in Ecobank.
After the Nedbank deal, Ecobank expects its capital adequacy ratio to hit 18.7 per cent of assets by year-end, up from the 17.5 per cent it was in the first six months of the year.
“The Nedbank stake is capped at 20 per cent. If they do convert I think that will strengthen the business relationship that we have (had) since 2008,” Essien said.
He added that: “The conversion will trigger reciprocal board seats. We see it as very positive and we expect that it will happen.”
Management of ETI expects to invest a portion of the Nedbank top-up into its Nigeria operations to boost capitalisation levels.
“ETI remains one of our top picks in our SSA banks universe, largely premised on cost optimisation across the Group and an increased contribution from Nigeria supporting future earnings growth momentum. We have made some changes to our earnings forecasts but maintain our ‘BUY’ rating,” Solanke added.