Guaranty Trust Bank Plc’s first quarter results for 2018 could signal the end of the high yields party for lenders across the country as it showed interest income dropping by 3.95 percent to N80.77 billion from N84.10 billion the previous year.
This compares a 50.64 percent surge in interest income between the Q1 2016 and 2017 periods, when interest rates on Treasury bills were at an all-time high of 22 percent.
The reason for the drop in interest income could be attributed the drop in yields on short term government securities towards the end of last year as government slowed down on domestic borrowings and intensified foreign borrowings with some Eurobond issuance’s.
This means the market could see interest income of lenders across the industry drop or grow at a slow pace.
Of course the above situation is unsurprising because analysts across a broad spectrum had predicted that banks margins could take a beating as the period of easy money comes to an end forcing them to start lending to the critical sector of the economy.
“We can see that the banks are not lending as much as they used to do and that explains the shrinking interest income on loans and advances,” said Ayodeji Ebo managing director and CEO of Afrinvest Securities Limited
“Interest income from government securities will also moderate as a result of reduction in yields and we expect that to continue to the next quarter. In summary, it is the combination of declining income from lending and reducing investment securities,” said Ebo.
Drilling down the figures of GTBank shows interest income from loans and advances fell by 7.66 percent to N48.65 billion in March 2018 from N52.69 billion as at March 2017.
Loans and advances for the largest lender by market value contracted by 6 percent to N1.41 trillion in the period under review from N1.50 trillion as at March 2017; due to cautious effort to de-risk the balance sheet.
Global Ratings agency Fitch had said in a recent report that Nigerian banks’ 2018 profit will take a hit from the decision of the Federal Government to cut down on the issuance of treasury bills in 2018.
The report notes that Nigerian banks will find it more difficult to sustain profitability in 2018 given the decline in net Treasury bill (T-bill) issuance as seen in the first quarter issuance calendar released by the Central Bank of Nigeria (CBN).
The most recent Nigerian Treasury Bills auction showed rates as low as 12.07 percent for the 364 day paper.
“We expect falling T-bill 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,” Fitch said.
GTBank’s net income rose by 7.71 percent to N44.67 billion in March 2017 from N41.47 billion as at March 2016.
This compares with a 61.92 percent increase recorded in the corresponding period between Q1, 2016 and 2017, when interest rates were high.
“We may have to work hard to grow volumes,” said Segun Agbaje the Managing Director of Guaranty Trust Bank plc during the bank’s full year financial statement presentation.