By Kayode Tokede and Olabode Jegede
Despite the low yield in government securities, five top banks in Nigeria invested N4.61 trillion in Treasury Bills (T-Bills), Federal Government Bonds, Eurobond, among others in 2018, Nigerian NewsDirect can report.
The five banks, FBN Holdings Plc, United Bank for Africa Plc, Zenith bank plc, Access bank plc and Guaranty Trust Bank plc (GTBank) in 2017 invested N3.68 trillion in different securities.
Analysts explained to Nigerian NewsDirect that banks operating in the country in the last five years partake in government securities investment, which is contributing to dwindling loan-to-deposit ratio of some of these banks.
Findings by our correspondent revealed that banks in 2018 reported hike in interest income generated from different securities as yield most especially T-Bills was not attractive considering double digit inflation rate last year.
FSDH Research in its report forecast 13.87 per cent on 91-Day FGN Bond Yields for 2018 as against 15.75 per cent actual yield in 2017.
Specifically, FBN Holdings and UBA dominated investment in securities last year as both investments an average of N1trillion in different securities while GTBank reported 12.3 per cent decline in investment securities in 2018.
The breakdown revealed that FBN Holdings in 2018 invested N1.66 trillion on securities, 33.3 per cent increase over N1.25 trillion in 2017 while UBA investment on securities also rose by 34.6 per cent to N1.64 trillion from N1.22 trillion in 2017.
For the like of Zenith bank, a total of N565.3 billion was investment on securities, 70.8 per cent increase over N330.95 billion in 2017.
As GTBank investment on securities dropped to N538.7 billion from N613.96 billion in 2017, Access Bank reported 80 per cent increase in investment on securities to N501.0 billion as against N278.2 billion reported in 2017.
Speaking with Nigerian NewsDirect, the Managing Director, Enterprises Stockbrokers Limited, Mr. Rotimi Fakayejo said banks were guaranteed risk free investment in government securities.
According to him, “investing in securities is a guaranteed return for banks and it is also risk free.
“Lending to the real sector is a task for them. The T-Bill and the Bonds are two easy get away for banks. They will continue to buy and am very sure that with the renewal of the term for the CBN governor, definitely, they will continually issue securities at least for them to be able to buffer their income.”
Also reacting, the Managing director, high cap securities, Mr. David Adnori said, “The truth is that the yields in T-Bills and of Bonds are very attractive which is abnormal.
“If you look at the average yield on equity, it is around five per cent, if not below but whereas in a normal economy, the yield on equity is supposed to be higher than the yields on government securities but much more worrisome is that the yields on T-Bills which is a short term instrument is also higher than the yields on Bonds which is a long term instrument whereby resulting in what we call the inverse yield curve, indicating that the economy is in a serious crisis because nobody wants to invest for the long term but for the short term which at the end of the day not very helpful to the productive economy.
“So, the short term economy is centered around trading activities and that is why most of the things that happen in this economy are related to trading and not production,” he said.
FSDH Research had noted that the expected average yields on the T-Bills to drop lower in 2018 than 2017. “Our expectation is that the yield will drop below the current levels following expected drop in inflation rate; the FGN’s strategy to issue longer dated bond against the short dated; the plans to increase the issue of foreign debt and Foreign currency stability.”