As Nigeria’s corporate banking sector plays a vital role in the development of other industrial sectors in the country, Olukorede Adenowo, Standard Chartered’s Executive Director and Head, Corporate Commercial and Institutional Bank explores the future for indigenous oil and gas players, as well as the Bank’s innovative corporate banking products that are directly contributing to the nation’s economic progress, in this interview with Okafor Endurance. Excerpt:
How would you describe the growth of Corporate Banking in Nigeria?
The Corporate Banking industry has benefited from the increased capitalisation of banks in the recent past. These have helped the sector become more robust with the ability to underwrite large and complex transactions.
The industry’s gross loans have increased by more than 40% in the last five years, standing at N25 trillion as of Dec 2020. This is evidenced by the various reforms such as the 2005 capitalisation, the establishment of the Asset Management Company (AMCON), corporate governance framework, adoption of the Basel II framework [with Basel III adoption in view] and IFRS 9, etc. The sector has also become more advanced by adopting a more sophisticated supervision framework by the regulator.
Consequently, the N25 billion minimum capital base, instituted in 2005, has become nearly irrelevant as most banks now have an equity base far exceeding this. Most banks also comply with the 10% (15% for international licenced banks) minimum Capital Adequacy Ratio (CAR) and the 30% minimum liquidity ratio. CBN has initiated more stringent guidelines to ensure that domestic/systemic important banks adopt 16% and 35% minimum CAR and liquidity ratios.
Read also: Nigeria may be left out as the world pumps more oil
It is worth noting that non-performing loans remain a crucial challenge in the sector-improving significantly over the years and currently hover around 6% of the total industry portfolio from approximately 15% in 2017.
Tell us about SCB’s role in expanding the corporate banking sector in Nigeria?
We have in the past supported Nigerian Banks to access debt funding from the international financial markets. Most recently are the successful Ecobank USD300m Eurobond in 2021 and FBN’s USD350m 5Yr Eurobond in 2020, which we co-served as mandated lead arranger.
Also, we have led and provided book-running and arranger roles of numerous international syndicated financing solutions for several key corporates, especially in the FMCG, Telecom, and Oil & Gas sectors. An example is the NGN100b Notes for Dangote Cement Plc and NGN5b CP for Guinness Nigeria Plc, both in 2020.
We are the international bank with the most extensive Nigerian trade exposure, showing our commitment to the sector’s development. We also provide thought leadership on corresponding banking-related risks through our Corresponding Banking Academy.
What core competencies and expertise does SCB bring to the corporate banking sector?
With over 160 years of global banking experience, we have built a solid and extensive global network that connects the key financial centres across 59 markets. We are present in Nigeria and 85 other countries providing our clients access to large institutional investors in the major financial centres; the US, UK, UAE & HK.
In Nigeria, we have a proven track record of providing structured financing and investing solutions to banks, diverse local and international corporates, including FX, interest rate and Commodity hedging solutions to manage the FX and Oil price volatility currently experienced in the market.
How would you describe SCB’s capabilities in Oil & Gas financing in Nigeria?
Over the past decade, SCB has played a significant role in assisting oil and gas companies in Nigeria to raise funds (both from the local and international markets) to develop the sector. SCB has acted as Financial Advisor on JV Financings above USD12bn and has committed its balance sheet to the tune of c. USD1.4bn.
We work very closely with players and regulators to unlock value across the industry value chain and offer a suite of banking solutions for international and indigenous oil and gas companies. As well as transaction banking services across collections, payments and trade services, commodity hedging solutions help our clients manage their exposure to crude oil price volatilities and enable them to ease their cash flow projections.
The fall in oil prices in Q1 2020, precipitated by the covid-19 pandemic, led to a lull in project finance activities in Nigeria’s oil and gas industry. Nonetheless, in line with our long-term outlook- SCB has still committed its balance sheet of over USD300m to 2 significant upstream and midstream oil and gas transactions that closed in 2020.
With the recent increase in oil prices, what are your thoughts on economic recovery for Nigeria?
Concerning Global oil prices, Crude oil prices have averaged USD67/bbl. over the past three months and have stayed above the $70/bbl mark since early June. However, analysis from our research team indicates that the oil market may tighten further in Q3 before easing up due to a fall in demand from India and other markets as they experience spikes in covid-19 cases. In Nigeria, we believe the current higher oil prices that are better than this time would boost sentiment and growth in 2021. Although Nigeria’s compliance with OPEC+ production cuts, which started in June 2020 and is expected to last till April 2022, will likely keep oil-sector growth negative in H1. Our research team estimates a GDP growth of 2.5% in 2021.
On the flip side, an increase in crude oil prices directly impacts the FOB prices of refined petroleum products, the essential being PMS (premium motor spirit)- Nigeria is yet to take a firm position on reflecting the increasing FOB prices at the retail pump price.
Nigeria generates over 90% of its foreign currency earnings from crude oil receipts. The positive impact of the rise in crude oil prices has been tempered by the OPEC+ cut in Nigeria’s production. The net effect of this is a very modest level of FX accretion to our reserves. As you know, our reserves are needed to support international trade activities. They provide some psychological assurance to FDIs and FPIs that there would be good FX should they repatriate their investments in the country.
How is SCB’s corporate banking division optimising and adapting to the rapid digitalisation of the banking sector?
Standard Chartered Nigeria remains at the forefront of providing digital solutions to our clients, and there are two ways we’re adapting to the rapid transformation. Internally, we have revamped our digital banking platform (the Straight2Bankplatform) to ensure our corporate clients enjoy an enhanced banking experience as they bank on the go, regardless of the type of device used. We are also building on our digital offerings via an open architecture with APIs and partnering with third-party vendors to offer a comprehensive suite of financial solutions to our clients.
Externally, we support our clients on their digital journey by encouraging them to use digital platforms for their transaction processing needs, leading to over 95% of our cash transactions being initiated by clients through our bank’s digital channels.
Recently SCB played a critical role as the Global coordinator in Seplat’s completed USD650m Corporate Bond Issuance and the OML 17 transaction for Heirs Holdings. Kindly tell us more about SCB’s involvement
Earlier this year, Heirs Holding Oil and Gas Limited (HHOG) completed its acquisition of 45% working interest in OML17 (a producing onshore oil and gas asset in Nigeria) from Shell Petroleum Development Company of Nigeria (“SPDC”), Total E&P Nigeria Limited “(TEPNG”) and Nigerian Agip Oil Company Limited (“NAOC”)
SCB acted as the joint buy-side M&A advisor for HHOG on all aspects of the transaction, including market sounding, potential equity investor screening, negotiation support, regulatory engagement, transaction structuring, overall process management, determination of commercial terms, completion of escrow account structuring and management and documentation negotiations
This transaction is widely viewed as ground-breaking and first of its kind in the African market, given its unique hybrid capital structure, including a combination of multi-tiered financing, a convertible facility and accordion features.
In addition to acting as the Global Coordinator & Financial Advisor on the transaction, SCB also served as the Technical Bank, Facility Agent, Security Agent, Escrow Agent, Documentation Bank, Account Bank and Hedging Coordinator demonstrating our entire suite value proposition to our clients in the oil and gas industry
Also, in March this year, we acted as joint Global Coordinator on Seplat’s USD650m five-year bond (the largest Nigerian oil and gas bond transaction ever priced). This was Seplat’s 2nd bond issuance, and SCB as acted as joint Global Coordinator on both issues
The transaction was successfully executed in a challenging market backdrop, demonstrating global investors’ confidence in the issuer and Standard Chartered’s deep knowledge of the Oil & Gas industry, access to diverse international and local investor pool, and strong relationships with the key stakeholders.
We remain the only bank that has led and served as Global Coordinators on all high yield Africa-linked oil and gas bond transactions since 2018 underscoring our unparalleled leadership in the space.
