Bank’s interest income from treasury bills for 2017
Source: Company Financials; M and I
Eleven Nigerian banks made N829.20 billion income from treasury bills (T-bills) in 2017 as they took advantage of high yields environment.
The above figure represents a 47.70 percent increase from N561.41 billion recorded in 2016 as lenders continue to ingeniously maximize the wealth of shareholders despite a tough and unpredictable macroeconomic environment.
Treasury bill (T-Bill) a type of government securities issued on behalf of the Federal Government by Central Bank of Nigeria (CBN) to control money supply in the economy. T-bills are short term securities issued at a discount for a tenor ranging from 91 to 364 days, which yields no interest.
The banks are Zenith Bank Plc, Access Bank Plc, Fidelity Bank Plc, First City Monument Bank (FCMB) Plc, Guaranty Trust Bank (GTBank) Plc, Union Bank Plc, First Bank Nigeria Holdings (FBHN) Plc, Sterling Bank plc, Wema Bank Plc, Diamond Bank Plc, and United Bank for Africa (UBA) Plc.
Yields from T-bills hovered around 18 percent and 22 percent from April and September last year as the CBN intensified on the sale of short term securities to help fund the budget deficit and control inflation.
Drilling down the numbers of some banks shows FBHN Plc’s income from T-bills increased by 50.22 percent to N173.28 billion from N115.35 billion the previous year.
Zenith Bank’s income from short term government securities increased by 82.33 percent to N109.74 billion in December 2017 from N60.18 billion as at December 2016.
Access Bank’s income from T-bills was up 85.43 percent to N83.23 billion in the period under review from N44.88 billion as at December 2016.
UBA’s income from short term government securities increased by 30.10 percent to N115.58 billion in the period under review from N88.81 billion as at December 2017.
“High yield environment boosted bank’s interest income. Yields were between 22 percent and 18 percent at some point in 2017,” said Wale Okunrinboye, analyst at Sigma Pensions Limited.
But a precipitous drop in T-bills yields from August last year to date could signal the end of free money for these lenders as margins are expected to shrink; an unavoidable event that could force them to start lending.
Yields on treasury bills now hovers between 11 percent and 13 percent while bond yields that were between 16 and 17 percent last year now hovers around 12 percent and 13 percent.
For instance, analysts at Fitch, a global ratings agency in a recent report said they expect banks’ profit to take a hit in 2018 on the back of the decision of federal government to cut back on the issuance of treasury bills in 2018.
“We expect falling T-bills yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018. The CBN’s latest issuance schedule shows N1.1 trillion (USD3.6 billion) of rollovers in the first quarter of 2018 against N1.3 trillion of maturing bills,” said Fitch.
Volatility in foreign-exchange related gains, limited scope for cost efficiencies and rising political risks before elections are other challenges that could cloud industry outlook.
Analysts are of the view that banks may see revaluation gains wane while the transition to the IFRS 9 could drive impairment loss especially of the ones that have weak capital adequacy.
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