In the space of nine months, precisely between January and September , 2017, three out of the commercial banks operating in the country earned a whopping sum of N197.8 billion interests investing in Federal Government’s Treasury Bills (T-Bills).
The commercial lenders include, United Bank for Africa Plc (UBA), Zenith Bank Plc and Guaranty Trust Bank Plc (GTBank).
The above banks invested estimated N1trillion in Debt Securities (T-Bills and Federal Government Bond) as Central Bank of Nigeria (CBN) issues T-bills twice a month to help the Federal government to finance 2017 budget deficit, curb money supply growth and provide an avenue for banks to manage liquidity.
The money market this year has been short of liquidity due to CBN’s mopping up of the local currency using the T-Bills and Bond auctions.
CBN had planned to borrow about N1.2trn in the second quarter of 2017 alone, which could take Nigeria’s T-Bills purchases to over N4trn by the end of September, 2017.
Interestingly in the banking industry, Zenith Bank continued to generate the highest interest income from investing in T-Bills despite low exposure to Debt Securities, while GTBank investment in Debt Securities hits the rooftop between January and September this year.
The breakdown revealed that, Zenith Bank earned N84bn investing in T-Bills between January and September this year, an increase of 125 per cent over N37bn earned from T-Bills in the same period of 2016.
The bank’s investment in Debt Securities hit N227bn in nine months of 2017 from N182.8bn reported in 2016.
Also, GTBank earned N66 billion investing in T-Bills between January to September 2017, an increase of 141.7 per cent from N27.5bn in the same period of 2016.
However, GTBank’s investment in Debt Securities moved to N484 billion as at September 30, 2017 as against N434.9bn investment in Debt Securities in 2016.
In addition, UBA earned N47.2bn investing in T-Bills, an increase of 132 per cent over N20.4 billion recorded between January to September of 2016.
The pan-African financial institution investment in Debt Securities rose by 58.4 per cent to N311bn from N196bn reported in 2016 financial year.
Finance analysts had explained that commercial banks will continue to invest in Debt Securities due to its high yield and risk free investment.
The Head, Research and Strategy at GTI Securities Limited, Mr. Chucks Anyanwu, explained that, investment in T-Bills is safe and returns are constant whether the nation’s economy goes severe.
According to him, Government has to borrow using the T-Bills and Bond following the dwindling global oil prices.
Government borrowing has sky rocketed this year as oil revenues dip and the country strives to dig out of its greatest economic crisis in over 2 decades.
To address revenue shortfalls, the government has resorted to borrowing in the domestic market often at exorbitant rates.
He said, “The effect of global oil prices has forced government to break and there was urgent need for government to grow its borrowing to be able to fund projects across the country.
Out outlook as far as foreign borrowing in 2016 was because our reserve was down; and were not attractive country to borrow funds.
“There were a lot of loan loss provisions by commercial banks, attributed to contraction in Gross Domestic Products (GDP). The nation’s economy in 2016, was in shambles; and banks beng the critical segment of the any economy were major casualties of the crisis.
“Last year, Nigeria was in a situation where government needed funds, while banks needed safety of investment – there was a collective needs that was meant.
“The reasons commercial banks were exposed to T-Bills was because they were looking for safe havens, deploy their assets where it will safe and make high yield on investment.”
He noted that banks were the only investors that fit into investment in T-Bills and Bond Market, given illiquidity in the nation’s economy.
He explained that commercial banks investment in T-Bills was a strategy to diversify their portfolio cases.
Explaining further, he said, “There is nothing bad in commercial banks investing in T-Bills provided they were not neglecting credit creation to the real sector. Banks are created to make money besides their financial intermediary. ”