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Nigerian banks who had positioned their balance sheets in anticipation of a rate hike by the central bank are now enjoying juicy yields, which signals the beginning of another era of free money.
Data gathered by MoneyCentral shows that the largest lenders in Africa’s largest economy collectively realised N740.81 billion in income from treasury bills and bonds in the first nine months of the year.
And that is 27.3 percent higher than N581.87 billion earned in 2021 as investment securities added impetus to interest income and margins.
It is worth noting that this is the first uptick or increase in 3 years as lenders were not parking much money in fixed income securities due to the low interest rate environment.
But yields generated by banks on security investment started rising in February this year on the back of the decision by the central bank to start hiking the monetary policy rate to combat red-hot inflation brought on by the war between Russia and Ukraine.
T-Bill is a short-term debt instrument issued by the federal government through the central bank to provide funding for the government. They are by nature, the most liquid money market securities and are backed by the guarantee of the Federal Government.
Nigerian 1-year T-bills traded at a 15.46 percent yield according to FMDQ data.
The general view of banks is that the interest rate hike was anticipated. As a result they had taken position to mitigate a pronounced impact of the increase in the interest rate on investment securities, according to Oluwaseun Arambada, analyst at FBNQuest.
“They positioned themselves on shorter tenured securities. For some, trading income was driven by the increased volume of trades and some gains from FX gains,” said Arambada.
The Central Bank of Nigeria (CBN) has hiked its monetary policy rate by 150 basis points to 15.5%.
Nigeria’s inflation rose to 21.09% in the month of October, 2022, according to the National Bureau of Statistics (NBS).
“High yields on T-Bills are part of the Nigerian authorities’ attempts to control inflation and manage demand for foreign currency,” said analysts at Global credit rating agency, Fitch.
“By providing a remunerative, relatively low-risk, naira-denominated investment (interest payments are tax-free), they (CBN) hope to encourage naira retention and dampen demand for US dollars, ” said the analysts.
Zenith Bank realised N120.11 billion in income from T-bills and bonds in the first nine months, which is 28.50 percent higher than 2021 N93.46 billion.
Access Bank raked in N200.6 1 billion in income from investment securities, which is 4.16 percent higher than 2021’s N191.71 billion.
United Bank for Africa (UBA) made N165.25 billion in income from T-bills and bonds, and that represents a 26.63 percent increase from 2021’s N130.50 billion.
FirstBank Holdings Plc raked in N99.65 billion in income from investment securities in the first nine months of 2021, which is 32.27 percent higher than 2021’s N75.92 billion.
It is important to note that juicy yields helped propel banks’ earnings, but investors’ apathy towards sector players’ shares still persist.
The selloff is significantly due to the uncertainty surrounding the 2023 elections and challenging environment as the currency continues to depreciate due to bad policies.