The prevailing restrictive monetary policy environment in Nigeria has been favourable to some banks, a report by Renaissance Capital Limited has stated.
The report titled: “Nigerian Banks: Survival of the Fittest,” obtained tuesday, stated that the relatively high yields on government securities created an environment for banks to grow their net interest income (NII) without creating new risk assets.
Yields on government treasury bills currently hover around 19-22 per cent.
Examining the banks’ net interest margin (NIM) trend, the report concluded that Stanbic IBTC, GTBank and FBN Holdings have been the biggest beneficiaries of the high interest rate environment.
It stated that GTBankâ€™s NIM of 10.1% in the first half of 2017, based on its estimate, is currently the highest as the bank has benefited significantly from treasury bill yields, while managing to control its funding costs.
“Stanbic IBTC on the other hand, has seen its NIM expand the most over a two-year period. We attribute this also to its ability to manage its funding costs effectively, and consider its year-to-date deposit growth of about 13% in the first half of 2017, without a significant increase in its cost of fund (CoF),” it explained.
Analysts at Renaissance Capital noted that system liquidity remains tight owing to aggressive open market operations by the CBN.
“We think this, coupled with the difficulty in growing deposits, will most likely exert further pressure on funding costs. With the improvement in forex liquidity, the banks have lost some of their naira deposits as customers that had kept deposits in anticipation of accessing forex are now able to do so. Further, the high treasury bill yields have made it more difficult for the banks to compete for deposits without compromising on costs.
“We believe that the tier 2 banks could not partake in this opportunity as they had to contend with forex shortages as well as the additional strain caused by the withdrawal of Treasury Single Account (TSA)-linked dollars from the banking system.
“This was also during a period where corresponding international banks had reduced their credit lines to local Nigerian banks given the increased perceived risk. In other words, these banks simply did not have the forex liquidity to play in that market.
FBN Holdings has not been as aggressive in entering these contracts, because it was also affected by TSA withdrawals and tried to manage its risk. GTBank also appears to have little appetite for such transactions, and given it has no other real use for forex funding in this environment, it appears that it will not be rolling over its Eurobond maturing in 2018,” it added.