Tier 1 lenders more exposed to decline in T-Bills issuance – Experts
by BALA AUGIE
February 16, 2018 | 12:53 am| | | Start Conversation
There are indications that Tier 1 lenders are more susceptible to the slowdown in Treasury bill issuance by the federal government late last year.
Analysts also expect the falling Treasury Bill (TB) yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018, but an improving economy means they will be a little bit comfortable to lend.
“Interests on short term government securities were high but now they are low,” said Bismarck Rewane, managing director and chief executive officer of Financial Derivatives Company Limited.
“Volumes and values will come down for the big banks on the back of a low interest rate environment. Interest on securities represented 30 percent of total gross interest earned by Tier one banks in the first nine months of the year,” said Rewane.
For the first nine months through September 2017, 12 Nigerian banks made N556.30 billion from interest income on government securities, which represents a 55.03 percent increase from N358.81 billion recorded as at September 2016.
Drilling down the figures show First Bank Holdings Plc made N120.11 billion from interest income on T-Bills as at September 2017, a 62.12 percent increase from the N74.14 billion recorded as at September 2016.
Zenith Bank’s interest income on short term government securities spiked by 125.17 percent to N84.33 billion in September 2017 from N37.35 billion as at September 2016.
Guaranty Trust Bank (GTBank), the largest lender by market value, saw interest income on short term government securities surge by 132.48 percent to N75.79 billion in the period under review.
The central bank sold treasuries at 18 percent in the second quarter of last year as it seek to woo investors that had jettisoned naira assets at height of a dollar scarcity.
However, the decision of Nigerian government to redeem treasury bills from proceeds of a planned Eurobond has resulted in a precipitous drop in yields to 13 percent.
It sold $3 billion in Eurobonds in November, part of which it used to fund its 2017 budget, and then paid off N198 billion in treasury bills in December, according to a report by Reuters.
Ayodeji Ebo, managing director and CEO of Afrivest Securities Limited says while big banks or Tier 1 lenders are more exposed to a drop in yields, they are ingenuous in looking for opportunities.
He says with an improvement in the economy, banks will be a little comfortable to lend to the real sector and earn interest income on loans and advances.
The banks would be persuaded to review their lending activities as they would be persuaded to lend to businesses because of their improvement in the economy, according to Ebo.
High non-performing loans in 2016 may have forced banks in the country to scale down credit facilities to the private sector in 2017 as banks became more cautious of high risk sectors.
The total credit to the private sector in 2017 witnessed a marginal decrease of 2.34 percent to N15.74 trillion compared with N16.12 trillion in 2016.
Tier 1 banks have more liquidity than the small lenders and it is logical that they feel the pinch when yields drop.
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