Banks in Dilemma as Customers, Investors Shun Deposits for Treasury Bills
Nigerian banks are currently finding it extremely difficult to mobilise deposits from institutional investors such as Pension Fund Administrators and insurance companies as well as individuals due to the attractive treasury bills yields.
The increasing awareness of the opportunities in the treasury bills market is seeing a lot of banks lose deposits to fixed income investments.This is because most investors and bank customers now benchmark interest rates on term deposit against treasury bills rates. Findings showed that those affected most are the Tier 2 banks as they are finding it difficult to meet the demand of the fund holders.But the Tier 1 banks are not under such pressure.The cash squeeze in the market clearly manifested in the interbank lending rate which increased to 23 per cent on Friday from five per cent the preceding Friday.
The Nigerian Treasury Bill currently offers a unique investment opportunity to Investors. It offers security and guaranteed premium returns to its investors.Last week, the 364-day instrument offered by the Central Bank of Nigeria (CBN) recorded excess subscription to the tune of N91.1 billion, whilst the CBN allotted N136.5 billion at a stop rate of 18.5 per cent relative to the offered amount of N120 billion. The 91-day (offer amount: N29.1billion; subscription: N26.1 billion) and 182-day (offer amount: N80 billion; subscription: N69.75 billion) instruments were however undersubscribed, whilst the CBN allotted N23.2 billion and N69.57 billion at stop rates of 13.4 per cent and 17.4 per cent respectively.
An analyst at Ecobank, Mr. Kunle Ezun, who confirmed the situation in the money market, said the banks are feeling the brunt now. “A lot of the PFAs, insurance companies and individuals are not willing to do term deposit again.They prefer doing treasury bills. “If they do term deposit, they get around seven per cent interest. But they can get as high as 18 per cent from treasury bills. A lot of the banks today are losing deposits because of this. “What the PFAs are saying is that if you cannot match treasury bills, bring back my money. Individuals are also saying: if you can’t give what treasury bills will give me, I am not going to save money with you. “If banks don’t have deposits, they can’t give loans. The few banks that are ready to match treasury bills rates are doing that at a cost.”
The Chief Finance Officer, Wema Bank Plc, Mr. Tunde Mabanwoku, also confirmed the challenge currently faced by the Tier 2 banks. Mabanwoku explained: “What we see now is that customers are increasingly benchmarking treasury bills rates. So, when customers come in that they want to do fixed deposits and you tell them its 12 per cent, they would be comparing what you tell them with treasury bills rates.“So, customers are becoming a lot more aware of what is happening out there and they are saying if they can put their money in treasury bills at 17 per cent, why should they put their money in a bank at 12 per cent. “So, banks have had to increase their cost of deposits just to match or get close to the sovereign rate.”
Also, the Managing Director, Afrinvest Securities Limited, Mr. Ayodeji Ebo, disclosed that owing to the opportunities in the treasury bills segment, foreign exchange speculators who had converted their naira to the dollar are now re-converting the greenback, back to naira in order to invest in fixed income securities.He said those that doubted the ability of the central bank to sustain its intervention are now convinced that the banking sector regulator has enough ammunition to sustain its foray in the market.He said: “People have been observing the development in the forex market. We have observed for over four months, the CBN has continued to emphasise that they would continue to intervene. “In addition to that, despite the frequent intervention by the CBN, the reserves have also not been depleting. So, that has boosted confidence.
“Also, if you look at the volume of transactions in the Investors and exporters’ window, that has also increased and we have seen banks now re-introduce their naira cards for dollar transactions.“So, those people that were trying to take arbitrage opportunities, especially those that entered when the dollar was as low as N400-N500, are trying to cut their losses by investing in risk-free investments like treasury bills. Luckily for them, the interest rate is also very high.”Nigeria’s external reserves stood at $30.927 billion as at August 3.