Lower yield environment: 11 Commercial banks report 1.3% increase in Interest income


Stories by Kayode Tokede

Amid lower yield environment, 11 commercial banks have reported marginal increase of about 1.3 per cent in interest income generated from Treasury Bills (T-B) and loans & advances granted to customers in nine months of 2018.

The 11 commercial banks generated N2.26 trillion in nine months ended September 30, 2018 as against N2.23 trillion interest income generated in nine months ended September 30, 2017. The banks are Diamond Bank Plc, Fidelity Bank Plc, FBN Holdings (FBNH), Zenith Bank Plc, Wema Bank Plc, United Bank for Africa Plc (UBA), Guaranty Trust Bank Plc (GTBank) and Sterling Bank Plc.

Others are, Ecobank, Access Bank Plc and Stanbic IBTC Holdings Plc.

Following the decision of the federal government to restructure its debt portfolio, by replacing domestic loan with foreign loan, the Central Bank of Nigeria (CBN) commenced a gradual reduction in yields on treasury bills.

Findings revealed that average yield on TB lower to 13.25 per cent as at September 2018 from above 18 per cent last year.

Of the 11 commercial banks, five reported decline in interest income, while three reported an average increase of 10 per cent.

Ecobank with the highest value reported 0.19 per cent increase in interest income, while Sterling Bank and UBA reported 19 per cent and 12.95 per cent increase in interest income generated from loans & advances to customers and investment in securities that include Treasury bills.

Fitch rating had predicted negative outlook for Nigerian Banks in 2018 over continued fragility in the operating environment.

The International agency said GTBank, Zenith Bank, Access bank, among others may find it more difficult to sustain profitability given the decline in net Treasury bill issuance in first quarter of 2018 issuance programme.

Coupon rates on Treasury 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.

”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.

The report by Fitch said, “High yields on T-bills issued in 2017 (around 13per cent-14per cent on 90-day T-bills) attracted investors and helped to support the naira. “An increase in oil export earnings and the introduction in April 2017 of the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism, commonly referred to as the Investors and Exporters’ FX Window (I & E FX), also helped naira stabilisation during the second half of 2017.”

“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.

A group of analysts at InvestmentOne had predicted that the apex bank might crash rate at the Treasury bill market while leaving rate in its Open Market Open (OMO) auction attractive.  The company explained that, “Going into second half of 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.

“But towards the end of H1 2018, it became obvious that even though the MPR was left as is, 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.”