Stories by Kayode Tokede
Amid low yields on Treasury bills, five banks generated N362 billion from securities investment in first half year ended June 30, 2018 (H1).
The considered banks had generated N3324.9 billion on securities investment in prior half year of 2017 as yield on Treasury Bills was attractive, as high as 18 per cent.
Banks also invest in Federal Government Bonds.
The five banks considered are Guaranty Trust Bank Plc, Access bank Plc, Zenith bank Plc, Stanbic IBTC Holdings Plc and United Bank for Africa (UBA) Plc.
As UBA reported significant increase in interest income generated from Investment securities, the like of Zenith Bank and FBN Holdings reported decline in the period under review.
The breakdown by Nigerian NewsDirect revealed that UBA’s interest income on securities rose by 51.6 per cent to N81.24 billion in H1 2018 from N53.6 billion reported in H1 2017.
UBA reported N43.7 billion interest income on investment securities in H1 2018 as against N30.03 billion in H1 2017 while interest income on bonds hit N37.5billion from N23.5 billion reported in H1 2017.
For Access Bank, the lender investment in securities rose by 20.7per cent to N45.27 billion in H1 2018 compared with N37.49 billion in H1 2017, while FBN Holdings reported FBN Holdings 2.4 per cent drop on interest income generated on government securities to N79.66 billion from N81.6 billion in H1 2017.
Zenith Bank thus reported five per cent drop on securities investment to N77.29 billion in H1 2018 from N81.37 billion in H1 2017, attributable to 13 per cent drop in T bills investment to N51.4 billion in H1 2018 as against N59 billion reported in H1 2017.
The other two banks, GTBank and Stanbic IBTC Holdings reported 17.8 per cent and 0.13 per cent increase in interest income generated from Investment securities to N51.1 billion and N27.5 billion in H1 2018 respectively.
The Central Bank of Nigeria (CBN) last year issued T-Bills twice a month to help the federal government fund its budget deficit, support commercial lenders in managing liquidity and curb inflation rate.
Analysts at InvestmentOne Securities said, “The loser monetary stance and its potential impact on yields on assets, dampened investors’ sentiment towards lenders.
“Yields on one-year treasury bills are currently witnessing the effect of the recovery in economic activities and the administration’s refinancing efforts, averaging 13.57 per cent in H1 2018 as against 22.14per cent in H1 2017.”
The Lagos based firm in its latest ‘Banking Sector H1 2018 Review and Outlook: still in Focus – Cost of Risk’ report, said, “The negative impact on asset yields have also been revealed in H1 2018 financial results released during the period.
“During the period, there was a slight moderation in average net interest margin (7.31 per cent in H1 ’18 as against 7.85per cent in financial year of 2017). This was majorly due to a slight increase in average cost of funds especially borrowed funds and a drop in yields on earning assets in the declining yield environment.”
The analysts at InvestmentOne noted that yields on securities might increase slightly as CBN might react to investors’ sentiment trading over political risks.
They explained that, “However, going into H2 2018, we are of the opinion that there may be a slight increase in yields, on the back of a possible protectionist stance by the CBN to investors as political risk becomes more evident.
“Also, the increased fiscal spending and policy normalization in the U.S which has announced two more potential rate hikes before the end of the year, and the likelihood of inflation trending upwards could force the Central Bank to tighten its monetary stance.
“Contrary to our earlier notion of an expected ease in monetary policy rate, the Monetary Policy Committee (MPC) has stood its ground and maintained the status quo in H1 2018, even with inflation slowing down to 11.23per cent y/y in June 2018.
“But towards the end of H1 2018, it became obvious that even though the MPR was left as if the Apex bank was still going to crash rates via its T-bill auctions while leaving rates in its OMO auction fairly attractive in order to still be able to contain inflation growth and foreign portfolio investor participation.”