The Nigerian art market is increasingly attracting attention of investors worldwide. The market is burgeoning, so much that the commercial capital, Lagos, has the highest density of galleries per square metre on the continent after South Africa: A testament to the growing interest that Nigerian artists have spurred on the international markets.
At least half of the contemporary African art sales registered at auctions worldwide are believed to come from buyers within the continent, chiefly Nigeria and South Africa.
In his, The rising value of Nigerian Art, the artist, gallerist and former President of Society of Nigerian Artists (SNA), Oliver Enwonwu, said: “Nigerian art continues to gain global attention and command staggering fees on the domestic and international markets.”
He added: “This development comes against the backdrop of; an increasing representation of artists by professionally-run galleries specialising in art from the African continent; more appearances by Nigerian artists at major fairs, biennales and festivals, all over the world, more artists studying at prestigious international institutions; and critical text, well distributed to new audiences through alternative channels including social media.”
Arguably, the secondary market in Nigeria emerged with the first formal auction themed, ‘When the Hammer Falls’, organised by Nimbus Art Gallery in 1999 at the MUSON Centre in Lagos. Currently, Arthouse Contemporary remains the clear leader in a market that includes the Lagos Auction by Terra Kulture and Mydrim galleries, as well as SOGAL by Signature Art Gallery.
The relative success of the secondary market has, in turn, influenced very strongly, the international market for Nigerian and African art.
The result is that international auction houses such as, Sotheby’s, Bonhams and PIASA now devote entire sales to modern and contemporary art from the African continent. In recent times, Christie’s and Phillips de Pury have also joined the fray.
However, amid strong presence of Nigerian arts in international market, demand and skyrocketing prices, the country does not have a strong art finance market. Collectors have not embraced the idea of seeing art as an investment.
To tap into the African art industry estimated at $400 million, Nigeria’s leading digital bank managed by VFD Microfinance Bank, Vbank and Artsplit, an art trading technology company, have announced the launch of their new art-based loan offering.
What is an Art based Loan? This is a term loan that can be accessed using artwork as collateral. It provides Collectors/Corporate bodies an opportunity to gain access with the right level of flexibility to a financial solution that works for their various needs.
ABL is accessible to anyone who possesses an investment grade/high-value artwork that can be put up as collateral. This could be art collectors, corporate bodies, gallery owners of high investment grade artworks, etc. The artwork will be used as collateral in securing the loan.
The Custodian of the artwork will be AAM (Anchoria Asset Management) till repayment is fully done. Artsplit will be handling the artwork valuation. The artwork will be insured.
An interest rate of 34.5 per cent per annum is applied inclusive of custodian, Underwriting, valuation, and insurance fees. The loan tenure is up to a maximum of one year (subject to exceptional approval). The artwork will be available for pickup within 24 hours.
Artworks are authenticated and valuated by Artsplit curatorial board and the value of the artwork must have a 200 per cent cover for the loan amount requested.
Driven by one common goal, Artsplit is enhancing the investment status of African art by allowing users to co-own rare and valuable artworks on a platform that guarantees price discovery and market liquidity.
The platform (Artsplit mobile app) allows art lovers to own fractions (also known as Splits) of prestigious African artworks, which they can trade in real-time.
Artsplit also provides opportunities for owners of investment-grade African art to list their works and have them evaluated and sold to members of our community.
Speaking at a media briefing to announce the offering, the Chief Executive Officer of Vbank, Gbenga Omolokun, said the innovative financing initiative is intended to empower art collectors, galleries and dealers by allowing them access capital for a variety of purposes by leveraging the value of their artwork.
The Vbank art-based loan, he stated, is a unique opportunity for art enthusiasts and businesses to maximise the value of their art collections without having to sell valuable assets.
According to him, “we are thrilled to introduce our art-based loan offering, which bridges the gap between art and finance. Our ground-breaking solution enables art collectors and businesses to maximize the value of their assets while maintaining ownership and control. We are confident that with Artsplit and AAM’s expertise and customised financing options, we can help our clients thrive in the dynamic art market.
“Vbank will offer the loan facility at 30 per cent/ with loan limits of N12 million and N60 million for individuals and corporates respectively. Artsplit will validate provenance, value the artwork and guarantee the loan at 3 per cent fee, custodian fee of 0.5 per cent and additional 1 per cent insurance charge.”
He added that the first-of-its-kind offering has several advantages, including, flexible financing, where borrowers can obtain loans based on a percentage of the appraised value of their artwork, “given them the flexibility to access capital. We have Tailored Loan Terms, which is individually structured to meet borrowers unique needs and Preserved Ownership: borrowers retain ownership of their artwork throughout the loan.
“We also have Diverse Use of Funds where loan proceeds can be used for a variety of purposes, including the acquisition of new artwork, the expansion of art businesses, the support of exhibitions and the meeting of short-term liquidity needs.”
The Guardian gathered that in the world over, the wealthy are borrowing billions against their art collections and lenders are reselling the debt.
While the big banks dominate art lending because of lower rates, more and more art finance firms and auction houses are expanding their loan business to attract more clients.
The value of privately held art is estimated at more than $2 trillion, and the potential market for art loans could easily top $400 billion, one expert said.
How art lending is big business for private banks
More and more wealthy art collectors are cashing in on low interest rates to borrow against their Picassos and Basquiats, adding to risks of a leveraged boom and bust in the art market. They are borrowing billions against their art collections and lenders are reselling the debt
While the big banks dominate art lending because of lower rates, more and more art finance firms and auction houses are expanding their loan business to attract more clients.
Reselling art loans
Lenders say the big opportunity — and the new risk — is in the business of reselling art loans to investors.
The Fine Art Group, an art advisory and finance firm, said loan requests surged by 30 per cent in 2020 compared with 2019 as collectors sought to borrow against their collections to invest in more art or other businesses.
Bank of America, a leading art lender, saw its art loan business surge 30 per cent last year, while JP Morgan and Goldman Sachs also saw strong growth, according to industry executives.
While the big banks dominate art lending because of lower rates, art finance firms and auction houses are increasingly expanding their loan business to attract more clients.
The term of an art-backed loan is typically a year, and owners can usually borrow as much as half of the appraised value of an artwork.
Yieldstreet, an online investing platform, just added an $11 million junior loan participation to its Diversified Art Fund 1, which pools together art loans backed by Andy Warhol, Roy Lichtenstein and other top artists. The fund, driven by analytics from the company’s Athena Art Finance unit, has sold nearly $40 million in loans to investors, with a targeted net return of 9.5 per cent.
However, the question is whether investors are fully aware of the risks of using art — an illiquid, opaque and fickle market — as loan collateral and an investment product. Artists who can be hot one year can flop the next. Borrowers, no matter how wealthy they are perceived to be, can have their own blow-ups.
According to the Chairman, Artsplit, Billy Osemwegie, the company’s expertise in art valuations and its deep knowledge about its clients reduce any risks of defaults on art loans.
Omolokun added that since loans are only for half the value of work of art, or even less, there is a ‘huge cushion’ in the event of defaults. The fund also lends against works by artists that are easiest to sell.
He said as done world over, they will focus on the most liquid, least volatile part of the market.
