High TB Yields Push Banks’ Net Interest Income to N2.013tn


Obinna Chima

The full year 2017 audited results have shown that 13 commercial banks quoted on the Nigerian Stock Exchange (NSE) raked in a total of N2.013 trillion through net interest income (NII) as they took advantage of the high yield environment for fixed income securities last year to boost their profits.

The amount realised by the 13 banks represented an increase by 11 per cent, compared with the N1.799 trillion they made in 2016.
The results reviewed by THISDAY were those of Zenith Bank Plc, Guaranty Trust Bank (GTBank) Plc, United Bank for Africa (UBA) Plc, FBN Holdings Plc, Access Bank, Fidelity Bank,Stanbic IBTC, Sterling Bank, First City Monument Bank (FCMB), Ecobank, Wema Bank, Union Bank and Diamond Bank.

The review however showed that the tier continuing, the 2017 results showed that at N1.253 trillion, the five tier 1 commercial banks among the 13 listed above, accounted for 61 per cent of the total NII, as against the N1.089 trillion they realised in 2016. The other eight banks posted total NII of N760 billion last year, higher than N709 billion in 2016.

A breakdown of this showed that while FBN Holdings’ NII increased to N321 billion in 2017, up from N304 billion in 2016; GTBank’s NII also climbed to N327 billion in 2017, up from N262 billion the previous year; Zenith Bank’s also increased from N240 billion in 2016, to N257 billion last year; UBA’s from N165 billion in 2016, to N207 billion last year; Ecobank Group’s NII rose to N299 billion in the year under review, from N284 billion the previous year; and Access Bank’s from N117 billion the previous year, to N130 billion last year.

On the other hand, while FCMB posted NII of N70.5 billion in 2017, higher than the N69.5 billion it recorded in 2016; Fidelity Bank’s NII improved from N62 billion the previous year, to N71 billion in 2017; Diamond Bank’s NII was also up, from N96 billion in 2016, to N98 billion in 2017; and Union Bank also reported higher NII of N67 billion in 2017, from N65 billion the previous year.
In the same vein, while Stanbic IBTC reported NII of N83 billion in 2017, up from N58 billion the previous year; Wema Bank’s N20 billion in the year under review, from N19 billion in 2016; Sterling Bank however reported NII of N50 billion in 2017, down from N55 billion the previous year.

Nevertheless, the situation may be different in the 2018 operating year as the ‘free lunch’ appears to have come to an end following the federal government’s reduced domestic borrowing, in line with its debt management strategy.

The federal government recently commenced the refinancing of maturing domestic debts with external borrowings as part of its overall debt management strategy of reducing debt service.Owing to this, the government had slowdown on its fixed income securities issuance which led to a significant drop in interest rate from around 18 per cent it was to about 10 per cent presently.
Other objectives of the government’s debt managementstrategy are to free up space in the domestic market for other borrowers and achieve a more sustainable debt portfolio mix of 60 per cent domestic and 40 per cent external.

Fitch Ratings had stated that Nigerian banks may find it more difficult to sustain their profitability this year, given the decline in net treasury bill issuance by the federal government.
It pointed out that Nigerian bankswere highly reliant on net interest income to remain profitable, saying treasury bills proved to be an important source of profits in 2017.

In addition, Fitch stated that its 2018 rating outlook for the Nigerian banking sector was negative, forecasting that sometier 2 banks would struggle to remain profitable this year.
“We expect falling treasury bill yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018,” it added.
On its part, Moody’s Investors Service in its latest outlook on Nigerian banks also noted that the declining yields on government securities would dampen banks’ core earnings.

“We expect return on assets of around two per cent in 2018, due to declining yields on government securities. Declining yields will be partially offset by increased non-interest income and lending growth.
“Additionally, some banks will continue to generate high earnings through derivative and swap transactions, although we expect these earnings to decline significantly over the next 12 months,” Moody’s added.