Bank deposits soar on CBN loans, dollar accounts

…Five biggest lenders boost deposits to N53 trillion

…Zenith displaces Access from top spot

Nigeria’s five biggest banks have seen their customer deposits grow at a faster pace this year, even as money supply in the country has risen by more than a quarter.

Their combined deposits grew by N15.7 trillion in the first nine months of this year to N53.34 trillion, compared to an increase of N4.47 trillion in the same period of 2022, data compiled by BusinessDay from their financial statements show.

Money supply in the economy hit a record high of N67.28 trillion in September, up from N52.16 trillion at the end of last year, according to the Central Bank of Nigeria (CBN).

Economic and financial experts attributed the surge in bank deposits to several factors, including the federal government’s borrowing from the CBN, the push for financial inclusion as well as the boost in the naira equivalent of the dollars in domiciliary accounts and increased federal allocations to states following the devaluation of the naira.

Devaluation boosts dorm account balance

Adeola Adenikinju, a professor of economics and president of Nigerian Economic Society, said the recent devaluation has boosted the naira value of deposits in domiciliary accounts.

“The naira has moved from about 460 to a dollar before June, when they (CBN) tried to do a convergence, to about 800/$ at the I&E window. That in itself has almost doubled the value of the domiciliary accounts in naira terms. I think that is the major factor driving the deposit growth,” he said.

Domiciliary accounts constitute more than a third of deposits in the banking sector and a large portion is sitting idle, according to him.

“There is a lot of money there. If we create dollar-denominated assets, some people can buy them and move that money from savings to some value that will be available to the economy that the government can then use to help build the value of the naira,” he said.

The total balance in the domiciliary accounts at commercial and merchant banks stood at N17.65 trillion ($28.93 billion, using the average exchange rate of N610.17/$) in June, up from N10.72 trillion ($23.20 billion, N462.01/$) in May, CBN data show.

Adenikinju disagreed with the suggestion in some quarters that the government should convert the money in those accounts to naira. “I think that will do a lot more damage to the economy because it will just hamper free flow of dollars.”

Read also:Zenith Bank’s quarterly profit jumps 149% to N434.2bn

Rising money supply worsens inflation

The federal government’s borrowing from the central bank could also be responsible for the deposit growth because “every spending will affect both savings and consumption”, Adenikinju said.

CBN data show that in the first half of this year, the federal government borrowed N2.99 trillion from the Ways and Means Advances, a loan facility used by the apex bank to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.

Johnson Chukwu, managing director of Cowry Asset Management Limited, said the central bank’s loans have pushed up money supply in the country, adding that the increase in customer deposits has helped boost banks’ profitability.

“Inflationary pressures will go up because money supply has increased. When customer deposits increase, it means banks have more money to lend,” he said.

The country’s inflation surged to a fresh 18-year high of 26.72 percent in September from 21.34 percent at the end of 2022.

“Since June, FAAC allocations to states and the federal government have increased significantly and that may also have generated a lot of economic activities related to government transactions, which possibly will have reflected in movement of cash and deposits within the banking sector,” Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said.

He said a likely uptick in economic activities post-election may have also boosted bank deposits.

Yusuf said: “Before the election, there was a lot of anxiety and uncertainty. Confidence level in the economy is beginning to gather momentum. Inflation too could be a factor because you now need more money to do quite a lot of transactions.

“If deposits are increasing, I think it’s good for the economy. It’s good for financial inclusion – that means more people are coming into the financial system. It is good for financial intermediation because the more money that goes through the system, the better.”

Read also:Zenith Bank’s half-year profit more than doubles to N350bn

Zenith emerges biggest bank by deposits

With N13.38 trillion as of September, Zenith Bank Plc overtook Access Holdings as the biggest lender by customer deposits. It recorded a 49.33 percent growth as against 24.27 percent in the same period last year.

United Bank for Africa Plc saw deposits jump 48.73 percent to N11.63 trillion, compared to an increase of 10.36 percent a year earlier.

Customers of Guaranty Trust Holding Company Plc increased their deposits by 39.2 percent to N6.25 trillion, compared to a growth of 6.23 percent in the same period in 2022.

Access Holdings Plc’s customer deposits rose by 38.7 percent to N12.83 trillion as against an increase of 17.84 percent last year, while FBN Holdings Plc saw a growth of 29.92 percent to N9.25 trillion compared to 12.82 percent a year earlier.

The five top-tier banks have operations in other countries, but customers in Nigeria account for a substantial chunk of the deposits they hold.

Deposits at Access Bank Nigeria jumped to N9.55 trillion in September from N7.53 trillion at the end of last year, while those of GTBank Nigeria grew to N4.54 trillion from N3.55 trillion.