By Kayode Tokede
A total of seven Deposit Money Banks (DMBs) invested N2.38 trillion in Treasury Bills (T-Bills) market in 2017 financial year, an increase of about 47 per cent from N1.6 trillion in 2016.
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.
The nation’s economy expected a budget deficit of N2.36 trillion in 2017 as it tries to spend its way out of a recession.
The discount rate on various maturities of T-Bills bills market ranged between 12.80 per cent and 18.98 per cent in 2017 as published by apex bank.
The T-Bills, which are issued more frequently in standard benchmarks: 91-day, 182- day and 364-day for refinancing purpose is about N4.211.85 trillion year-to date in 2017.
The seven considered DMBs are Guaranty Trust Bank Plc, Access bank Plc, Zenith bank Plc, and United Bank for Africa (UBA) Plc.
Others are Wema bank Plc, First City Monument Bank Group and Sterling bank Plc.
Interestingly in the banking industry, Zenith Bank in 2017 maintained the highest investment in securities.
The breakdown by Nigerian NewsDirect revealed that, Zenith Bank investment in T-Bills in 2017 rose by 68 per cent to N936.6 billion from N557.43 billion reported in 2016.
Also, GTBank investment in T-Bills last year stood at N550 billion, 13 per cent increase over N486.3 billion invested in T-Bills in prior year.
GTBank reported N492.5 billion available for sale investment securities in T-Bills in 2017 as against N421.2 billion in 2016 and N57.9 billion held to maturity investment securities from N65 billion reported in 2016.
However, UBA reported 64 per cent increase in T-Bills investment to N651.1 billion as against N395.87 billion reported in 2016.
UBA’s available-for-sale investment securities in T-Bills continued to increase, closing 2017 at N457.65 billion from N155 billion in 2016.
For Access Bank, the lender investment in T-Bills gained 22 per cent to N118.18 billion in 2017 compared with N96.69 billion in 2016, driven by N88.2 billion held to maturity investment securities in T-Bills last year from N27.35 billion reported in prior year.
Others are Sterling Bank with N25.98 billion investment in T-Bills, 847 per cent increase over N2.7 billion in 2016 while FCMB’s investment in T-Bills gained 66 per cent to N70.66 billion in 2017 from N42.5 billion in 2016.
Meanwhile, Wema Bank investment in T-Bills dropped significantly to N25.98 billion, 27 per cent below N35.6 billion reported in 2016.
Finance analysts had explained that commercial banks will continue to invest in Debt Securities due to its high yield and risk free investment.
The Head, Research and Strategy at GTI Securities Limited, Mr. Chucks Anyanwu, explained to our correspondent that, investment in T-Bills is safe and returns are constant whether the nation’s economy goes severe.
According to him, “federal government has to borrow using the T-Bills and Bond following the dwindling global oil prices.
Government borrowing has sky rocketed this year as oil revenues dip and the country strives to dig out of its greatest economic crisis in over 2 decades.
To address revenue shortfalls, the government has resorted to borrowing in the domestic market often at exorbitant rates.
He said, “The effect of global oil prices has forced government to break and there was urgent need for government to grow its borrowing to be able to fund projects across the country. Out outlook as far as foreign borrowing in 2016 was dim because our reserve was down and were not attractive country to borrow funds.
“There was a lot of loan loss provisions by commercial banks attributed to contraction in Gross Domestic Products (GDP). The nation’s economy in 2016 was in shambles and banks been the critical segment of the any economy were major casualties.
“Last year, Nigeria was in a situation where Government needed funds while banks needed safety of investment – there was a collective needs that was meant.
“The reason why commercial banks were exposed to T-Bills was because they were looking for safe havens, deploy their assets where it will safe and make high yield on investment.”
He noted that banks were the only investors that fit into investment in T-Bills and Bond Market, given illiquidity in the nation’s economy.
He explained that commercial banks investment in T-Bills was a strategy to diversify their portfolio cases.
Explaining further, he said, “There is nothing bad in commercial banks investing in T-Bills provided they were not neglecting credit creation to the real sector. Banks are created to make money besides their financial intermediary. “
Besides, analysts have expressed concerned over banks caution investment in Debt securities over slowdown in rates that might affect earnings.
Fitch rating had predicted that CBN T-Bills slowdown may impact negatively on Nigerian Banks profits in 2018.
The International agency named Guaranty Trust bank, Zenith Bank, Access bank Plc, United Bank for Africa Plc, among others lenders might find it more difficult to sustain profitability given the decline in net T-Bill issuance in first quarter of 2018 issuance programme.
Coupon rates on T-Bill and bond were reduced as the federal government looks to increase its financing from external sources and longer-dated domestic issuances.
According to Fitch, “We expect falling T-bill yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018.
The CBN’s latest issuance schedule shows N1.1 trillion ( of rollovers in first quarter of 2018 against N1.3 trillion of maturing bills. In 2017, rollovers fully covered maturing bills.
“Performance metrics at all banks will be affected by weak demand for lending, falling T-bill yields, lower foreign-currency translation gains and rising loan impairment charges, but the largest banks are best placed to withstand these challenges,” Fitch said.
According to Fitch, record T-bill issuance in 2017 helped support the CBN’s strategy to maintain stability at the foreign exchange market as global oil prices continued to rally.
”Nigerian banks are highly reliant on net interest income for profitability and T-bills proved to be an important source of profits in 2017.
“Interest on securities represented 30 per cent of total gross interest earned in nine months of 2017, averaged across Nigerian banks rated by Fitch (2016: 23 per cent),” the report by Fitch explained.
Fitch said as at Nine months ended September 2017, federal government securities including T-bills represented more than 15per cent of the banks’ total assets as new lending fell, reflecting weak credit demand, tighter underwriting standards and banks’ reluctance to extend new loans as they focused on extensive restructuring of troubled oil-related and other portfolios.