Union Bank’s share sale will enable lender build capital buffers

The decision by Union Bank of Nigeria to raise as much as N50 billion in a share sale to existing investors will enable the lender build capital buffers against shocks.
Analysts are of the view that such additional capital from the right offering will the give the bank the leeway to fund expenditures designed to expand its business.
“The sale of such shares will give the lender the capital buffers to withstand shocks,” said Bismarck Rewane, CEO, Financial Derivative Limited, by phone.
The company is seeking permission from shareholders for the rights offer at a Dec. 7 extraordinary general meeting, Lagos-based Union Bank said in an e-mail on Friday. It is asking that a special resolution be approved to increase authorized share capital to 17.5 billion naira from N9.5 billion.
Union Bank is planning on making such strategic move to raise additional capital amid adverse economic conditions.
Nigeria banks are grappling with bad asset quality and exposure to the oil and gas as a sharp in oil price left many companies unable to pay back interest on loans.
Also, failed fiscal and monetary policy caused severe crunch as dollars became scares and liquidity squeeze bite hard.
Moody’s Investors Service said last month that Nigeria’s five biggest banks share common credit challenges related to the economic slowdown. Moody’s expects non-performing loans to increase to about 12 percent over the next 12 months. The ratio of non-performing loans to total credit rose to 11.7 percent at the end of June from 5.3 percent at the end of 2015, the Abuja-based Central Bank of Nigeria, which requires banks keep the measure below 5 percent, said in a report on its website.
For the first nine months through September 2016, Union Banks’ pre tax profit increased by 39.44 percent to N13.27 billion from N9.55 billion the previous year, fuelled largely by strong growth in interest income and a thriving retail business.

 

BALA AUGIE