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Nigeria’s largest banks are enjoying juicy yields presented on a platter of Gold by a central bank hiking interest rates to stabilise prices as they made money from treasury bills and government bonds.
Sometimes monetary policies favor lenders that put their money in fixed income securities when yields are high to earn a reasonable return. The income from investment securities strengthens interest income, and to a larger extent, profit.
The 10 most liquid and capitalised banks collectively made N798.37 billion in income from investment securities as at December 2022, which is 31.09 percent higher than 2021’s N609.27 billion, according to data gathered by MoneyCentral.
One benefit of the central bank’s interest-rate hikes aimed at wresting control over inflation is that savers looking for a safe investment for a year or less can now get the best yields in ages from Treasury bills, or T-bills.
Treasury bills — like Bonds and Treasury inflation-protected securities, or TIPS — are issued by and backed by the government. Bonds, for example, can pay interest for up to 30 years. T-bills are the ticket for people looking for short-term savings of up to a year.
The Nigeria 10-year government bond has a 14.450 percent yield, according to data from World Government Bonds (WGB).
The Central Bank of Nigeria raised its monetary policy rate to 18% from 17.5% in its February 2023 meeting, marking the second interest rate hike in 2023.
“Specifically, the hike in both MPR and CRR by 400bps and 500bps (to 18%and 32.50%, respectively) leaves the banks in a pain-and-gain situation,” said analysts at Afrinvest Securities.
“On one hand, the increased MPR presents an opportunity for banks to reprice their loans with customers to reflect the current market realities and higher yields on investment securities,” said analysts at Afrivest Securities.
Higher CRR however drains liquidity from banks, leaving them with less firepower to create loans.
For the year ended December 2022, Zenith Bank raked in N157.45 billion in income from investment securities; Access Bank, N276.31 billion; Guaranty Trust Holding Company, N55.55 billion; United Bank for Africa, N121.64 billion, and First Bank Holdings (9 months’ results), N97.12 billion.
The momentum flowed into the first quarter as the banks realized N284.15 billion in the first three months of 2023, which is 50.85 percent higher than 2022’s N188.20 billion, according to data gathered by MoneyCentral.
In the first quarter of 2023, Zenith Bank made N55.56 billion in interest income from treasury bills, Access Bank, N87.04 billion; United Bank for Africa N81.34 billion.
There is a widening gap between the earnings of the big banks and the small ones.
For instance, Zenith, Access, GTC0, UBA, and Ecobank collectively realised N707.79 billion as at December 2022.
And that compares to the N107.32 billion made by Fidelity Bank, FCMB, Union Bank, and Stanbic IBTC.
Of course, the big banks have a more solid balance sheet and are well capitalised.