Zenith, UBA, 2 others holding govt’s N4.4trn debt instruments

By Chukwumah Kelechukwu

Four top Nigerian banks are cumulatively holding federal government’s 2018 debt instruments valued at N4.4 trillion according to data from their last year’s audited financials.

The foremost lenders are Zenith Bank Plc, United Bank for Africa (UBA) Plc, GTBank Plc and the old Access Bank Plc.

This implies that in 2018, government borrowed a whopping N4.4trillion from the leading lenders in the form of investments in fixed income instruments including Federal Government (FGN) Bonds and Treasury Bills.

In previous year 2017, the same banks had loaned to the federal government, a total of N3.43trillion, indicating that the government’s borrowing from the banks rose by 28.04 percent in 2018.

Figures obtained from the financial statements of the banks indicated that UBA invested the largest amount of N1.64 trillion in treasury bills and bonds in 2018, representing 34.63 per cent higher than the N1.22 trillion it reported for the same purpose in the previous year.

Zenith Bank which reported N1.22 trillion investment securities in year 2017, increased its holding by 23.51 percent to N1.57 trillion in 2018.

GTBank also reported a 3.1 percent increase in its investments in treasury bills and bonds to N694.1 billion in 2018, up from N672.9 billion it had reported in 2017.

Similarly, Access Bank’s investments in treasury bills and bonds in 2018 jumped 80.13 percent to N501.07 billion, up from N278.17 billion the lender had reported in previous year 2017.

Attracted by high yields in government securities, deposit money banks have been investing heavily in government securities after non-performing loans hit disturbingly record levels in 2015, necessitating banks to start cutting credit to individuals and corporates.

 Global credit rating agency, Fitch Ratings, had noted that Nigerian banks are highly reliant on net interest income for profitability and T-bills proved to be an important source of profits in 2017.

According to them, interest on securities represented 30 per cent of total gross interest earned in nine months of 2017, averaged across Nigerian banks rated by Fitch (2016: 23 per cent).

In October 2017, the agency had stated that Nigerian banks averaged a 7.5 per cent margin on treasury bill (T-bills) yields in the first half of 2017 (1H17).

According to the rating agency, banks had been investing heavily in T-bills since the second half of 2016, improving interest income and maintaining margins.

It noted that “high yields on T-Bills are part of the Nigerian authorities’ attempts to control inflation and manage demand for foreign currency. By providing a remunerative, relatively low-risk, naira-denominated investment.”

According to Fitch, T-Bill yields still ranked higher than savings deposit rates, which are capped at 30 per cent of the monetary policy rate (MPR) of 14 per cent.