Nigerian Banks Double Investment Securities Amid Rising Yields and Currency Devaluation
Summary and Detailed Breakdown:
Nigerian banks have significantly increased their holdings in investment securities, with a 145% rise recorded in the first nine months of 2024. This growth is largely driven by the attractive yields on treasury bills and bonds, coupled with the devaluation of the naira, which boosts the value of foreign-currency securities.
Key Insights:
1. Investment Increase: Top banks including Ecobank, Access Holdings, Zenith Bank, UBA, and others collectively held N40.9 trillion in investment securities as of 9M 2024, up from N16.7 trillion in 2023.
2. Role of Currency Devaluation: The naira’s devaluation has contributed to the growth by increasing the translated value of foreign-denominated securities, such as Eurobonds.
3. Shift in Asset Allocation: Banks are allocating more funds to investment securities over loans due to lower associated risks.
4. Profit Surge: The increase in investment yields is positively impacting banks’ net interest income, with many reporting record after-tax profits for 9M 2024.
Bank-Specific Performance:
• Ecobank: Largest in investment securities at N11.3 trillion, with after-tax profit up to N491.8 billion.
• Access Holdings: N10.2 trillion in securities, with after-tax profit surging to N457.7 billion.
• GTCO: Investment securities at N2.51 trillion, with profit reaching N1.08 trillion.
• UBA: N6.4 trillion in securities, and after-tax profit of N525 billion.
• Zenith Bank: N4.77 trillion in securities, profit rising to N827 billion.
Market and Policy Impact:
The Central Bank of Nigeria’s (CBN) tight monetary policy and high-interest rates have elevated yields in the fixed-income market, contributing to the profitability of these investments. The current monetary policy rate stands at 27.25%, incentivizing banks to capitalize on higher returns from investment securities rather than riskier loans.
Outlook:
As banks continue to benefit from high-yield securities and favorable currency revaluation, their preference for investment securities over traditional lending may continue into 2025, potentially enhancing financial stability but also impacting lending activities in the economy.
Summary and Detailed Breakdown:
Nigerian banks have significantly increased their holdings in investment securities, with a 145% rise recorded in the first nine months of 2024. This growth is largely driven by the attractive yields on treasury bills and bonds, coupled with the devaluation of the naira, which boosts the value of foreign-currency securities.
Key Insights:
1. Investment Increase: Top banks including Ecobank, Access Holdings, Zenith Bank, UBA, and others collectively held N40.9 trillion in investment securities as of 9M 2024, up from N16.7 trillion in 2023.
2. Role of Currency Devaluation: The naira’s devaluation has contributed to the growth by increasing the translated value of foreign-denominated securities, such as Eurobonds.
3. Shift in Asset Allocation: Banks are allocating more funds to investment securities over loans due to lower associated risks.
4. Profit Surge: The increase in investment yields is positively impacting banks’ net interest income, with many reporting record after-tax profits for 9M 2024.
Bank-Specific Performance:
• Ecobank: Largest in investment securities at N11.3 trillion, with after-tax profit up to N491.8 billion.
• Access Holdings: N10.2 trillion in securities, with after-tax profit surging to N457.7 billion.
• GTCO: Investment securities at N2.51 trillion, with profit reaching N1.08 trillion.
• UBA: N6.4 trillion in securities, and after-tax profit of N525 billion.
• Zenith Bank: N4.77 trillion in securities, profit rising to N827 billion.
Market and Policy Impact:
The Central Bank of Nigeria’s (CBN) tight monetary policy and high-interest rates have elevated yields in the fixed-income market, contributing to the profitability of these investments. The current monetary policy rate stands at 27.25%, incentivizing banks to capitalize on higher returns from investment securities rather than riskier loans.
Outlook:
As banks continue to benefit from high-yield securities and favorable currency revaluation, their preference for investment securities over traditional lending may continue into 2025, potentially enhancing financial stability but also impacting lending activities in the economy.