There has been a sharp drop in revenues from both short- and long-term investment securities that signals the end of free money for Nigeria’s largest banks who rely on such juicy yields to underpin revenue.
For the first three months through March 2020, the five largest lenders collectively realized N132.52 billion in investment securities, but that is a 21.11 percent drop from 2020’s N168.07 billion, according to data gathered by MoneyCentral.
Investors have bemoaned the harsh regulatory environment, adding that forcing financial institutions to extend credit to risky sectors will definitely lead to deteriorating asset quality.
The apex bank barred individuals and local corporations from its Open Market Operations, and that sent net treasury yields crashing; it also hiked the minimum loans to deposit ratio to 65 percent with the view to forcing banks to lend to the economy.
While rising bond yields since January is supposed to be a boon for banks, the incessant debit for failure to meet cash reserve ratio requirement (CRR) that is undermining reserves means they are not as liquid to trade in government securities as they did last year.
“They cannot expand their loan books because of the risk environment,” said an analyst who doesn’t want his name mentioned.
Unsurprisingly, the largest lenders are feeling the pinch of the unfriendly regulatory environment as return on average equity is nose diving while revenues are shrinking.
For the first time in 5 years, banks have failed to be the major driver of NSE 30 firms’ profit growth. The NSE 30 is the list of the most capitalized and liquid companies on the bourse.
In the latest GDP report by the National Bureau of Statistics (NBS), the financial sector contracted, losing its shine to the manufacturing and telecom sectors that are the major drivers of economic growth.
The first quarter results of Tier 1 lenders were not grandiose at all, and that was largely due to precipitous drop in income from fixed income securities, and interest income from loans and advances have been growing at snail pace.
FBN Holdings Plc’s net income dipped by 32.49 percent to N15.61 billion as at March 2021 from N23.14 billion the previous year. Interest income from government securities reduced by 61.82 percent to N14.67 billion in the period under review from N38.45 billion the previous year.
Guaranty Trust Bank, the largest lender by market capitalization, saw net income fall by 9.03 percent to N45.54 billion in the period under review, while income from short term government securities dipped by 63.42 percent to N9.97 billion in the period.
Zenith Bank’s net income rose by a mere 5.02 percent to N53.06 billion as at March 2021, but income from investment securities reduced by 10.10 percent to N32.12 billion the previous year.