Fixed Income Analysis /

CEEMEA banks in 2020: A whistlestop tour

    Tolu Alamutu
    Tolu Alamutu

    Credit Research Analyst, Banks

    Tellimer Research
    13 December 2019
    Published byTellimer Research

    New Year? Bring it on! 

    And just like that, it’s almost 2020. Developed markets may be preoccupied with the US elections, Brexit and continuing trade talks for much of next year. For financial institutions in Central and Eastern Europe, Middle East and Africa (CEEMEA), 2020 also promises to be an eventful year.

    Central and Eastern Europe – heavy on news flow 

    Right at the start of 2020, we expect news regarding the call option on a Vakifbank subordinated bond. This may impact other Turkish banks’ callable bonds. In February, Halkbank is scheduled to repay a US$750mn bond, and a London Court will hear a case brought by the trustee for Privatbank senior bonds. UniCredit is due to finalise the sale of part of its Yapi Kredi stake, and Koç Holding has said Yapi Kredi is to be fully consolidated. This may bring spreads on YKBNK bonds closer to those of KCHOL securities. 

    We are still waiting for a eurobond market return at Oschadbank. Perhaps 2020 will be the year, as more amortisation payments on existing securities are due. Profitability at Privatbank, which we do not expect to be returned to its former shareholders, will likely remain stronger than at both Oschadbank and Ukreximbank. The results of the asset quality stress test carried out in Kazakhstan are anticipated early in the New Year. We have few concerns about Halyk Bank. We hope to see further progress regarding the restructuring at International Bank of Azerbaijan, as the position of holdouts is yet to be addressed. 

    In Georgia, the bank bond primary market may be less busy than in 2019, but we think there is a chance that Bank of Georgia may look to replace its GEL-denominated eurobond. The spread difference between the TBC Bank and Bank of Georgia senior bonds looks too wide we think – the TBC Bank bond may be worth a look. We expect issuance from banks in Armenia, Belarus and Uzbekistan.

    Middle East – improving relations, perpetual securities, Lebanon 

    The first of the call notices on Middle East bank perpetual securities falls in early 2020, and with issuers such as First Abu Dhabi Bank potentially returning to the market, we may break existing records for new issue coupons. With reports suggesting a thawing in relations between Saudi Arabia and Qatar, we think we may see increased eurobond issuance from Qatari banks. We note that Qatar International Islamic Bank recently placed its first perpetual security. Across the Middle East, M&A activity is likely to continue. 

    In Lebanon, banks may finally disclose figures for Q3 19 (and possibly the full year). With the sovereign due to repay a US$1.2bn eurobond in March, another US$700mn security April and US$600mn in June, a solution to current challenges may come sooner rather than later. As is well known, the Lebanese banks are significant holders of sovereign bonds, so what happens with these securities has direct implications for Lebanon’s lenders. Current bank bond prices suggest some form of burden sharing is anticipated.

    Africa – Nigeria and South Africa in focus 

    2019 has been a good year for Nigerian bank bonds. It may be difficult to replicate returns recorded in the last couple of years in 2020. These banks now have just four bonds and US$1.3bn outstanding. We eagerly anticipate news on the Dangote refinery, which is scheduled to be completed next year. Loans extended to Dangote Industries in 2013 mature in 2020. 

    Challenges at various SOEs will likely continue to weigh on the sovereign and on growth in South Africa. The banks may not be left unscathed – asset quality and other metrics may come under pressure. In addition, if Moody’s does downgrade the sovereign, it is almost certain that major banks’ ratings will follow. One key positive is that South African banks have not relied on foreign markets for funding. Thus, the impact of further challenges on CEEMEA bank-wide returns may be manageable. African Bank is due to repay both its restructured USD-denominated bonds next year. Market conditions permitting, a new eurobond may be in the offing, given recent issuance success in the local ZAR market.