The increase in local currency issuance reflects banks' reduced appetite for foreign-currency lending, their desire to diversify funding and their need to issue capital securities to meet forthcoming Basel III capital requirements.
Tuesday 12, March 2019 BY KUDAKWASHE MUZORIWA
Fitch Ratings said that Nigerian banks' rising local-currency issuance is credit positive as it diversifies their funding and reduces their foreign-exchange risk, however, most ratings remain constrained by Nigeria's operating environment.
In a statement, the rating agency stated that Nigerian lenders are likely to grant more lending to existing local currency borrowers that benefit from the economic recovery, targeting new sectors that have been underbanked, particularly retail and SMEs.
Nigeria is moving towards Basel III, which may get underway this year and is likely to weigh on banks' regulatory capital ratios.
Fitch expects Nigerian banks to bolster their capital by issuing subordinated debt eligible as Tier 2 capital rather than by raising equity.
Additionally, investors’ demand for local bonds is mainly domestic, but higher real yields, as well as greater exchange-rate stability, could attract foreign interest.