Nigeria’s largest banks realised N824.28 billion from interest income from government securities in 2019, which may be tougher to replicate this year.
The amount raked by them in 2019 represents 11.43 percent increase from N739.32 billion they made in 2018, according to data gathered by BusinessDay.
A breakdown of the figures shows the tier 1 lenders, who have good asset quality and cash to play in the market, raked in more money in government securities as they earned N745.15 billion, which represents 90.13 percent of the total figure.
However, there was a 51.01 percent increase in income from investment in government securities by banks in 2017, when yields hovered between 22 percent and 18 percent as steep inflation, a lack of foreign exchange and high levels of unpaid loans weighed on banks risk appetite.
“The money they made was when interest rates were high in the second quarter (Q2), and before the stringent rules started in September,” according to Yinka Ademuwagun, research analyst at United Capital Research.
“The question is where interest income will be at the end of the year amid the current global and local macroeconomic uncertainties,” Ademuwagun says.
If the current reality of coronavirus that is raving global economy is sustained through the year, then central bank will have to relax its stringent policies so as to encourage local investors like financial institutions to partake in the fixed income market, Ademuwagun states.
Analysts say Nigerian banks are caught in a conundrum as a string of regulations that started last year will continue to make it practically difficult for them to deliver sustainable earnings growth.
The central bank raised the cash reserve requirement for lenders to 27.50 percent of total deposits, from 22.50 percent, to curtail excess liquidity in the industry, but analysts are of the view that the move is an aggressive way of tightening liquidity.
In October last year, policy makers barred individuals and non-banking firms like pension funds from buying high-yield short-term government bond, which pushed down T-bill rates sharply.
“We conclude that the CBN is likely to hold out on FX strategy changes for as long as possible, meaning the chances of further unorthodox policies are high,” analysts at Renaissance Capital Limited said in a recent report.
“Thus, the banks are likely to continue to bear the cost of macro stability. This has strategic implications for how the banks approach the future,” the analysts say.
In order to force Deposit Money Banks (DMBs) to extending credit to the economy, the apex bank hiked minimum Loans to Deposits ratio to 65 percent.
Despite the new LDR rules, the cumulative interest income on loans and advances of the 10 largest lenders increased by 2.87 percent to N1.44 trillion in December 2019, from N1.40 trillion in 2017, that compares to 8.89 percent increase in 2018/17 financial years.
The novel coronavirus that has killed over 6,500 and infected over 100,000 people across the world has disrupted global supply chain and upset the fragile balance in the oil market.
Crude oil prices have halved to $30 from $68 at the start of the year, as the OPEC and non-OPEC member Russia failed to agree on an output cut.
The foreign exchange market on Monday resumed with dollar selling at N380/$ in some area of Lagos.
With strong bargaining power you can buy dollar at the rate of N377 at Eko Hotel and Festac areas of Lagos State. But in Apapa, it is trading at N380 per dollar.
Early last week, the naira exchanged at N410 per dollar as panic buying heightens, a remainder of the dark days of 2016, when the currency touched down at N500.
BALA AUGIE
