The successful issuance of $1 billion Eurobond by Access Bank Plc has paved the way for other banks to approach the market ahead of the November 2021.

It was gathered that the successful issuance of $1 billion Eurobond by Access Bank Plc has paved the way for other banks to approach the market ahead of the November 2021 effective date for banks to commence the implementation of Basel III guidelines, some investment analysts have said.

Although there are other ways the banks can raise capital such as equity financing, investment and securities, the success recorded of the Access Bank Eurobond issuance shows that other lenders may go that route.

“I am aware some other banks are coming to the market”, said Johnson Chukwu, managing director/CEO, Cowry Asset Management Limited.

Access Bank on Friday issued an additional $500 million tier-1 Eurobond, two weeks after the bank issued the first $500 million Eurobond, which was oversubscribed by 200 percent at $1.6bn on its order book.

Samuel Sule, acting CEO, Nigeria, Renaissance Capital, said:
“The success of this transaction highlights Access bank’s solid credit story and sets a strong benchmark for additional tier 1 issues from nigerian banks.”

Ayokunle Olubunmi, head, financial institutions ratings, Agusto and Co Limited, however, thinks other banks may not issue Eurobond except those that have matured Eurobond.

“Access Bank’s first issue ($500,000) is mainly to refinance the matured Eurobond while the second issue ($500,000) is to shore up the capital base”, he said.
The bank noted that the additional tier 1 Eurobond which was issued under its medium-term note programme was “Basel III compliant perpetual non-call 5.25-year subordinated Note to be listed on the London Stock Exchange.”

Basel III, which is alternatively referred to as the Third Basel Accord or Basel Standards, is part of the continuing effort to enhance the international banking regulatory framework, according to Investopedia.

It specifically builds on the Basel I and Basel II documents in a campaign to improve the banking sector’s ability to deal with financial stress, improve risk management, and promote transparency. On a more granular level, Basel III seeks to strengthen the resilience of individual banks in order to reduce the risk of system-wide shocks and prevent future economic meltdowns.

Commenting on the transaction, the group managing director of the bank, Herbert Wigwe stated:
 
“At Access Bank, we remain fully committed to the execution of our vision to become the ‘world’s most respected african bank.”

According to Wigwe, the success of the transaction, which he said was the first in the Nigerian banking industry and the first of its kind in Africa outside of South Africa, would significantly enhance the bank’s tier 1 and total capital ratios ahead of Basel III implementation in Nigeria.

Additionally, the bank boss said the fresh capital would provide room for significant growth through ongoing execution of the bank’s strategic objectives.

Renaissance Capital, a leading emerging and frontier markets investment bank, on September 30, 2021, in the capacity of Joint Lead Manager and Bookrunner, successfully completed Access Bank Plc’s $500mn additional Tier 1 Eurobond offering.

This Basel III-based USD-denominated PerpNC5.25 Regulation S/144A Additional Tier 1 bond was priced at 9.125 percent, which implies an optimal premium to Access Bank’s earlier launched senior bond issue and is in line with comparable AT1 issues from the broader Central and Eastern Europe Middle East and Africa (CEEMEA) region. The bond issue was placed as part of a broad $1.5bn funding programme.

The offering enjoyed strong investor demand, highlighting the positive perception of the bank’s credit story and the management’s clear strategy. 

Regulatory approvals allowed Access Bank to comfortably tap markets for a benchmark $500 million AT1 transaction – the first from a Nigerian bank.

According to Sule, acting CEO, Nigeria, Renaissance Capital, the success recorded by Access Bank sets a strong benchmark for Additional Tier 1 issues from Nigerian banks. 

“Renaissance Capital is pleased to have been a part of this concerted effort to deepen the Nigerian capital markets and support economic growth,” he said.

The Central Bank of Nigeria (CBN) on September 11, 2020 said it would commence a phased implementation of Basel III standards and revise the existing Basel II guidelines on Regulatory Capital and Supervisory Review Process in 2020/2021 fiscal years.

In a letter to all banks dated September 2, 2021, the CBN said the implementation of the guidelines would commence with a parallel run effective from November 2021 for an initial period of six months, which may be extended by another three months, subject to milestones achieved in the supervisory expectations.

Africa’s biggest economy’s banking sector regulator said it had completed the development of guidelines for Basel Ill implementation by banks in 2020. However, due to the outbreak of the COVID-19 pandemic, the implementation was suspended to minimize the regulatory compliance burden on the banks.

The letter signed by Haruna Mustafa, director banking supervision, stated that all banks are to submit monthly returns not later than five working days after the end of the preceding month, with effect from November 2021.

During the parallel run, the Basel III guidelines shall operate concurrently alongside the existing Basel II guidelines, also subject to the successful conclusion of the parallel run, the Basel Ill Guidelines shall become fully effective, the letter said. 

“Finally, all banks are to note that capital add-on will be introduced in a phased manner as part of the overall supervisory process of pillar ii assessment to enhance better risk management practices and better align their capital with their risk profiles,” the letter reads.

This is to reduce the risk of a build-up of excessive leverage in the banking system and provide a safeguard against excessive concentration.