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   COMMENTARY AND ANALYSIS

 Cautious optimism: African Banks and the issue of bonds      May 06, 2008
These are great and boisterous times for African banks especially in West Africa where Nigerian and Ghanaian banks are performing exceptionally well. All you hear about these banks are healthy news. Their net returns are in black and profits  are quadrupling, investors are knocking at their doors from home and broad. The past banking reforms especially in Nigeria spearheaded by the able Governor of Central Bank of Nigeria, Professor Chuma Soludo was the anchor for these good things happening at the banking sector.

The next frontier as it appears is the issue of bonds for mostly overseas consumption. Nigerian banks are expected to issue over half a billion dollar ($500M) bonds before the end of third quarter and their Ghanaian counterparts are targeting almost $750 Millions. GT Bank in January 2007 became the first bank in Nigeria and West Africa to issue a US$350 million Regulation S Eurobond on the London Stock Exchange. The market fundamentals of banks in Nigeria and Ghana are strong and healthy. The respective home economies are rapidly growing even some banks in Nigeria were rated double minus (BB-) by London Stock Exchange.

Yes we will like to think that all is well and that all the dangers associated with issuing bonds especially in developing economy have been nipped in the bud. Let us be realistic, Nigerian and Ghanaian banks are residing in a fragile economic and political environments that can easily be destabilize by risky factors that may trigger market nosedive in the region. West African economy is not diversified, mostly rest on the oil revenue. Any disruption in oil market can weaken their currencies and spur capital flights, ultimately driving away investors.

Peace is good for business. Nigeria has not yet secure a reasonable and sustainable peace for long time economic development. Niger delta and political disturbance in that region can impact unfavorably on banking outlook in the country. To continue to encourage foreign bondholders, a quantifiable peace is necessary to stabilize the economy.

Banks must be looking at long time investment strategy, not blinded by short time perspective. They must involve in the transformation of the mostly petty traders into serious business moguls that understand the dynamics and intricacy of globalization. Banks must be at the epicenter of financial enlightenment in the region.

African Banks must not abandon the serious job of tackling inflation and building a stronger currency to the central banks. They can be a partner to monetary and fiscal policies of the government by adhering to rules and regulations of banking sector and not trying to exploit the loopholes for short time gain and by so doing weaken the banking sector.



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