Banks' investment securities more than double on juicy yields

Nigerian banks’ investment securities jumped 145 percent in the nine-month period of 2024 due to attractive yields, analysis by BusinessDay shows.

Lenders who invested their money in investment securities such as treasury bills and bonds when yields were low now earn higher returns as bond yields have been rising in the past one year.

Investment securities are a category of tradable financial assets such as equities or fixed-income instruments that are purchased to hold them for investment.

Data gathered by BusinessDay shows that Ecobank Transnational Incorporated, Access Holdings, Zenith Bank, UBA, Guaranty Trust Holding Company (GTCO) Plc, FBN Holdings Plc, Fidelity Bank Plc, Stanbic IBTC Holdings Plc, Wema Bank Plc and Sterlings Financial Holdings Company Plc collectively realised N40.9 trillion in the nine-month, as against 2023’s N16.7 trillion, indicating 145 percent increase over the period.

“Naira devaluation was a driver for the growth through translation of the foreign currency component of their investment securities,” Olumide Sole, research analyst at Vetiva Capital Management Limited, said.

He stated that however, this was not the only driver as banks have started to allocate a larger portion of their interest-earning assets to investment securities instead of giving them out as the risk of investment securities is lesser compared to loans.

“Investment securities are in foreign currencies such as Eurobonds, and the revaluation gain means the earnings of the assets will increase, which is positive for the banks,” Tesleemah Lateef, a banking analyst in an investment firm, told BusinessDay.

Lateef added that income from investment securities has been a consistent major driver of earnings. It helped underpin the net interest income, or the difference in banks’ earnings from lending and paying for deposits.

Further analysis of the statements shows that Ecobank Transnational Incorporated, Access Holdings Plc, and UBA reported the highest amount in their investment securities amounting to N11.3 trillion, N10.2 trillion, and N6.4 trillion, respectively.

The country’s central bank has maintained tight monetary policy as it has been increasing policy rates in the face of inflationary pressures and a volatile exchange rate environment. This aggressive policy stance is responsible for elevated yield in the fixed-income market.

Nigeria’s monetary policy rate (MPR) stands at 27.25 percent, following the most recent adjustment in September 2024.

Data from FMDQ Securities Exchange Limited revealed quoted the naira at N1,678.87/$ at the Nigerian Autonomous Foreign Exchange.

Regarding banks with the highest growth in investment income, FBN Holdings tops the list with 316 percent, followed by GTCO with 215 percent and Access Holdings with 155 percent.

Others are Stanbic IBTC, Ecobank, UBA, Zenith, Sterling, Wema and Fidelity had 137.5 percent. 130.6 percent, 114.2 percent, 108.2 percent, 45.2 percent, 33.6 percent, and 7.18 percent, respectively.

Analysis of individual firms

FBN Holdings

FBN Holdings’ investment securities rose to N4.41 trillion in the nine-month period from N1.06 trillion in the same period of 2023..

The holding company’s after-tax profit surged to N526.2 billion in 9M from N234.1 billion in the same period of 2023.

GTCO

GTCO’s investment securities were worth N2.51 trillion in 9M, up from N796 billion in the same period of last year. The bank’s after-tax profit surged to N1.08 trillion from N367 billion.