First Bank of Nigeria’s (FBN) most striking success over the past year was its ground-breaking debut launch into the global capital markets, a deal that has helped put Nigeria on the map of mainstream emerging market investing. Its aggressive retail expansion has heralded a new era of domestic capital contributing to the country’s growth story.
In March, the country’s largest financial institution overcame market unrest and a turbulent pre-election period to issue its debut $175 million bond, the second Nigerian bank to do so and the first subordinated deal. CEO Moyo Ajekigbe explains how the stigma of Nigeria’s woeful debt history had undermined investor sentiment and constrained the bank’s growth.
“Having made up our minds to access the international market for funds, we remained aware of downside risks from the country’s reputation that are carry-overs from the period when we were still classified as non-compliant,” he says.
Ajekigbe’s confidence in international capital raising was initially hit by the unfortunate precedent set by rival Guaranty Trust Bank. Spreads on the latter’s debut Eurobond in January 2007 – the first from a Nigerian bank – widened by as much as 130 basis points in the secondary market. “We had to contend with the fact that an earlier senior debt offer by a local competitor was treading deep waters at the same time as we were coming to the market,” he says.
His caution paid off, however, as FBN prepared a meticulous roadshow that won over investors, and the bond was twice oversubscribed. This helped diversify its fund profile substantially, but the benefits will be felt beyond the bank – the deal’s success demonstrated that Nigerian issuers can exhibit the level of professionalism required to win over foreign investors.
This year has also seen a fundamental shift in FBN’s business strategy, to reflect increased competition in corporate finance, as well as Nigeria’s newfound economic confidence, which is beginning to feed through to household financial habits. “Our long-term goal is to grow high-quality loans and advance at a rate high enough to compensate for the erosion of earnings due to reduced margins, which would be achieved through large ticket exposures to select prime corporate customers,” he says.
This growth push is bearing fruits, with profits in the first quarter of 2007 rising by 30% year-on-year. And it is also accompanied by prudent risk management, which is “progressing toward international best practice”, according to Standard & Poor’s bank rating analyst Matthew Pirnie.
Not content to sit back, Ajekigbe says the bank is also looking out for potential partnerships and acquisitions. “In a highly competitive environment like ours, especially given the markets’ increasing emphasis on choice and convenience, organic growth alone would be insufficient to meet demand for our services. We are thus committed to profitably combining the rapid roll-out of our multi-channel service delivery architecture with carefully targeted business combinations,” he says.
For FBN, Nigeria’s largest bank, such consolidation can only help create a more robust financial system in the country.