(Ecofin Agency) - Ecobank Nigeria is navigating financial challenges due to non-compliance with its capital adequacy ratio. The bank is seeking an extension to raise $200 million and strengthen its capital base.

A new risk has surfaced for Ecobank Transnational Incorporated, the pan-African banking group, according to a recent analysis by Moody's. Ecobank Nigeria has requested a six-month extension from creditors on a $300 million bond maturing in 2026. The extension is needed to restore its capital adequacy ratio to above the 10% minimum threshold, which it must maintain to uphold its credibility. The bank needs this time to mobilize $200 million and bolster its capital base.

In international lending agreements, particularly in the financial sector, borrowers must maintain a certain level of capital to ensure their ability to repay debt. Moody's reports that Ecobank Nigeria has been out of compliance with this contractual requirement since June 2024. The bank is asking its creditors for a moratorium to avoid increased interest rates or an early repayment demand.

This situation puts pressure on the Lomé-based parent company, which may need to step in if the Nigerian subsidiary fails to raise the necessary funds or if creditors enforce the contract terms. Moody's warned that a liquidity extension or capital injection by ETI into Ecobank Nigeria would represent a significant liquidity need for ETI in a globally tight financing environment.

Despite strong performance in West, Central, and Southern Africa, the group continues to face challenges. It has upcoming debt maturities in 2025 and 2026, including a $500 million Eurobond that was repaid in April 2024 using long-term loans from development finance institutions and part of a $250 million bridge loan secured in March, repayable over 12 months.

In the short term, Ecobank must secure an agreement with its Nigerian subsidiary's creditors and find investors willing to inject the necessary funds within six months, ideally through a convertible bond issue or a capital increase.

This task is challenging. The capital ratio violation may deter other creditors, and negotiating a capital infusion could be tough.

As of the first half of 2024, Ecobank Nigeria accounted for 13.3% of the group's total assets, estimated at $26 billion. However, three key indicators need improvement. Its cost-to-income ratio worsened to 77.7% from 73.3% in the same period in 2023, and its return on equity is below 4% in a country with 34% inflation and an unstable exchange rate.

Nigeria is no longer a dominant market for Ecobank, though the Nigerian subsidiary remains the largest by assets in the country, with significant potential for the banking sector.

In H1 2024, Ghana emerged as a key player within the group, with $143 million in net banking income and $63.8 million in pre-tax profits and amortization.