Nigeria States Seen by FBN Selling Bonds as Oil Income Falls

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FBN Holdings Plc, owner of First Bank Nigeria, said it expects to benefit from a surge in sales of bonds by state governments to replace dwindling oil revenue and after peaceful elections bolstered investor confidence.

“We expect a lot of the state governments to go to the market to issue bonds to be able to fund their projects,” Chief Executive Officer Bello Maccido said in an interview. “It presents an opportunity for the investment-banking business.”

The 36 states comprising Africa’s largest economy get the bulk of their budgets from their share of the nation’s oil income, which has slumped after prices declined by more than 50 percent since June. Nigerian bonds and equities advanced as President Goodluck Jonathan conceded defeat to former military ruler Muhammadu Buhari following a March vote, soothing investors’ concerns that a disputed result may cause election-related violence.

“The successful conclusion of the election will bring back local and foreign investors that are comfortable with the outlook of the economy,” Maccido said Monday at FBN’s offices in Nigeria’s commercial capital, Lagos.

Seven Nigerian states applied to the Securities and Exchange Commission for approval to raise a total 140.3 billion naira ($704 million) in January to September last year for projects including roads, schools and markets, according to figures from the Abuja-based SEC. The regulator was less willing to approve state debt before the presidential polls because it wanted to ensure judicious use of the funds, former Director-General Arunma Oteh said last year.

Merchant Bank

“Since the bonds will be tied to projects, they’ll be able to generate cash flow and the governments able to make repayment,” Maccido said.

The lender plans to open a merchant bank this year after regulatory approval as it seeks to prepare its investment banking unit for “more project finance, end-to-end transactions and enhanced fixed income and FX trading,” Maccido said.

FBN forecasts loan growth of about 4 percent this year, with a focus on small- and medium-sized companies operating outside the oil and gas industries, he said. In its retail operation, the bank intends to pursue low-cost savings and current accounts to reduce expenses and as a response to tighter rules on liquidity introduced by the regulator, said Maccido.

Nigeria’s Abuja-based central bank last year increased lenders’ cash-reserve requirement on public-sector deposits to 75 percent from 50 percent and for private-sector deposits to 20 percent from 15 percent.

Profit Gain

The reserve-requirement increase absorbed about 560 billion naira at FBN last year, representing 18 percent of deposits, Maccido said. The lender “lost about 64 billion naira from the cash-reserve effect,” he said.

Net income for 2014 rose 17 percent to 82.8 billion naira, while net interest income increased to 243.9 billion naira from 230.1 billion naira, it said in an April 7 filling to the Nigerian Stock Exchange.

FBN was unchanged at 9.50 naira as of 11.27 a.m. in Lagos trading. The stock has gained 8 percent this year, compared with a 1.4 percent advance in the 181-member benchmark index.

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