A customer queing into Family bank banking hall along Kenyatta Avenue in Nairobi. Fredrick Onyango

Banks Deposits Dwindle As Customers Switch To T–bills, FX Purchase

(Sundiata Finance) – Nigerian banks’ deposit growth has hit a three-year low, due to increased appetite for Treasury Bills by customers and their move to clear up foreign exchange (FX) obligations.

Analysts interviewed by BusinessDay agree that the slow growth in customer deposits is also partly explained by the high interest rates, which necessitated a deliberate reduction (by banks) in the expensive components of their deposits.

The cumulative total deposits from customers of the 12 lenders that have released Half Year 2017 results, increased by an average of one per cent, to N16.53 trillion in June 2017.

This compares to the half-year period to June 2016 when deposits from customers surged by 31.54 per cent or N4 trillion to N16 trillion.

“We believe more retail customers that would have left their unutilised deposits in their accounts, now have more investment options to generate returns on such idle cash. Such options include Government Treasury Bills and Savings Bonds, Corporate Commercial Papers, and risky instruments such as stocks,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham Plc, in a note to BusinessDay.

The rate of growth of bank deposits has been trending lower, since the middle of last year. Banks total deposits spiked by 41.42 per cent or N4.78 trillion, as at the third quarter of 2016 to N16.32 trillion, from N11.58 trillion in third quarter 2015.

Furthermore, deposits increased by 11.69 per cent or N2.02 trillion, to N17.27 trillion as at December 2016, compared to N15.25 trillion in December 2015 while it rose by 7.86 per cent in the first quarter of 2017, compared to the level it was at first quarter 2016.

Drilling down into the numbers, Guaranty Trust Bank Plc’s, the largest lender by market value, had total deposits from customers dip by one per cent to N2.02 trillion in second quarter 2017, while Access Bank’s and United Bank for Africa (UBA)’s total deposits fell by 9.31 per cent and one per cent to N2.44 trillion and N3 trillion respectively, in second quarter 2017, compared to the earlier 2016 period.

However, Zenith Bank’s deposits from customers increased by 4.47 per cent to N2.97 trillion, as at half year.

Among second tier banks, First City Monument Bank (FCBM)’s deposit to customer, dipped four percent, while Diamond Bank deposits was down two percent. The highest growth in deposit base was recorded by Union Bank with a 15 percent rise in deposits from customers in the period under review (half year 2017).

Other analysts say banks in Africa’s largest economy and oil producers are increasingly finding it difficult to mobilise deposits from institutional investors such as Pension Fund Administrators (PFAs) and insurance companies.

“Higher yields on short term instruments are responsible for the reduction in deposit growth,” said Ayodeji Ebo, Managing Director, Afrinvest Securities Limited.

“The awareness for treasury bills is increasing by the day, especially when investors’ expect to enjoy tax free investments,” said Ebo.

In a bid to keep liquidity tight in the banking industry and also finance rising government deficit, the CBN frequently auctions treasury bills at attractive rates, which has become a favourite investment option for institutional investors and high net worth individuals.

The CBN plans to raise N193.14 billion worth of treasury bills at an auction on August 30, according to the Central Bank of Nigeria (CBN).

The bank will offer N26.14 billion in three-month paper, N62 billion in six-month bill and 105 billion in one-year paper.

Earlier in the month, the central bank had raised N256 billion in six month treasury at an attractive yield of 18 per cent, as it sought to woo both local and foreign investors to patronise the offer.

Analysts also explained that another reason for the slow growth in deposits is the improvement in the liquidity in the Foreign Exchange market, as customers (retail and institutional) draw down on their naira deposits to fund their foreign exchange demand.
“The relatively weak growth in deposit in the first half of the year, can be attributed to two major factors amongst others. First, most corporates continuously deployed otherwise naira deposits into foreign currency purchase, taking advantage of the increased dollar liquidity in the system; thanks to the investors and exporters window and increased supply from the CBN,” said Abiola Rasaq, Head of Investor Relations, United Bank for Africa (UBA).

“Secondly, the lagged impact of naira devaluation and inflationary environment have partly eroded households’ purchasing power, thus necessitating some households to tap into savings to sustain their standard of living, particularly as disposable income remains relatively pressured,” said Rasaq.

The decline in deposits has not affected the profitability of revenue stream of the banks, as most of the top banks still recorded significant growth in revenues profits for the first half of the year.

The big banks, often referred to as the tier one banks (First Bank, Zenith, Guaranty Trust Bank, Access Bank and United Bank for Africa), which make up nearly 75 per cent of market capitalisation of listed banks, had interest income surge by 43.71 per cent to N977.37 billion, as at June 2017 data compiled by BusinessDay shows. (BusinessDay)

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