…as Customers’ appetite in T-Bills rises
By Kayode Tokede
Commercial banks operating in the country have seen interest expenses spike on the heels of increased low cost funds deposits as well as increased customers’ appetite for Treasury Bills (T-Bills) investments in 2017.
Finance experts attributed the growth in interest expenses to foreign debt payment expenses and payment on fixed deposit expenses of customers.
They explained that financial institutions borrowing from Eurobond may also contribute to spike in interest expenses in 2017.
Research Analyst at Pan Africa Capitals Plc, the Investment Banking arm of Pan African Capital Group, Mr. Moses Ojo, stated that banks customers despite the recession in 2017 invested in fixed securities over higher yields.
He noted that bank customers’ appetite in federal government’s securities increased following government domestic borrowing to finance 2017 budget.
According to him, “Competition among banks to raise debt deposits is increasing by the day.
“Customers are aware that yield on Treasury bill is higher than bank’s deposit. In order to attract deposit on Treasury bill and FG bond, banks increased interest to woo customers last year.”
The Managing Director, Highcap Securities Limited, Mr. David Adnori, explained to Nigerian NewsDirect that financial institutions reported hike in interest expenses over foreign loans payment.
According to him, “Most of the Tier I banks that borrowed foreign loans had to pay interest and it affected their interest expenses. Besides, drop in the foreign exchange market also increased their interest expenses.
“In a move to encourage deposit, banks increased interest expenses on fixed deposit to attract customers and boost their working capital.”
Also commenting, The Managing Director, Cowry Assets Management Plc, Mr. Johnson Chukwu, said, the Central Bank of Nigeria (CBN) and federal government borrowing interest on Treasury bills had continued to attract investors interest, forcing banks to respond with increased interest on deposit to sustain liquidity position.
Specifically, a total interest expenses of six commercial banks increased by 33.6 per cent to N792.7 billion in 2017 as against N593.35 billion reported in 2016.
The six commercial banks thus reported N15.88 trillion Deposits from customers in 2017, an increase of about 11.7 per cent from N14.2 trillion in 2016.
The six banks are Access Bank Plc, Guaranty Trust Bank Plc (GTBank), Zenith Bank Plc, Ecobank Transnational Incorporated, Stanbic IBTC Holdings Plc and United Bank for Africa Plc (UBA).
The breakdown revealed that Access Bank that reported 7.4 per cent increase in customers’ deposits to N2.24 trillion in 2017 from N2.09 trillion in 2016 reported 44.6 per cent increase in interest expenses to N156.4 billion as against N108.14 billion in 2016.
Interest expenses by Access Bank increased significantly on its commercial banking, followed by Corporate & investment banking in 2017.
The other two Domestic Systemic Important Banks, Guaranty Trust Bank Plc (GTBank) and United Bank for Africa Plc reported 20 per cent and 19.49 per cent increase in interest expenses to N80.67 billion and N118 billion in 2017 respectively.
GTBank thus reported 3.8 per cent increase in deposits from customers to N2.06 trillion in 2017 compared with N1.99 trillion in 2016 while UBA’s deposits from customers gained about 10 per cent to N2.7 trillion from N2.49 trillion in 2016.
GTBank in a statement said, “customers’ deposits improved by 3.8per cent with low cost funds accounting for 82per cent as against 79 per cent in 2016 in-spite of Customers’ utilization of Naira deposits to clear pent up foreign exchange obligations as well as increased customers’ appetite for Treasury bills investments; investments in Customers’ Treasury Bills grew by 92 per cent Y-o-Y from N197.1billion in 2016 to N378.8billion in 2017.”
Meanwhile, Zenith Bank with about 50 per cent increase in interest expenses to N216.6 billion in 2017 as against N144.4 billion in 2016 as customers’ deposits rose by 15.2 per cent to N3.44 trillion in 2017.
Accordingly ETI’s interest expenses increased by 24.9 per cent to N181.6 billion in 2017 from N145.36 billion in 2016 while deposits from customers gained 13 per cent to N4.65 trillion in 2017 from N4.1 trillion reported in 2016.
Finally, Stanbic IBTC Holdings reported 32.8 per cent increase in interest expenses to N39 billion from N29.6 billion the previous year.
The Tier-II bank’s deposits from customers however, gained 34 per cent to N753.6 billion from N560.97 billion in 2016.
The Central Bank of Nigeria ( CBN) in its fourth quarter economic report revealed that banking system’s net claims on the federal government, at the end of the fourth quarter of 2017 stood at N3.6 trillion.
“This indicated 28.0 per cent decline in the review quarter, compared with the decline of 5.5 per cent at the end of second quarter of 2017, but was in contrast to the 38.7 per cent growth in the corresponding period of 2016. The development relative to the preceding quarter was due, mainly, to the 33.2 per cent fall in treasury bills held by banks,” the report by CBN disclosed.