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Despite CRR debits, Nigerian Banks record higher net interest income

Banks are recording higher net interest income, despite the CBN’s frequent CRR debits chalking off significant amounts of their cash.

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Some of the top banks in Nigeria posted a total net interest income of N403 billion in the third quarter of 2020 compared to N369.5 billion in the same period in 2019.

In the first 9 months to date, the banks have reported a combined net interest income of N1.2 trillion compared to N1.1 trillion same period last year.

READ: Aviation: Nigerian ground handling firms count revenue losses due to pandemic-induced plunge

Nairametrics collated these figures from the following banks, FBNH, UBA, GT Bank, Access Bank, Zenith Bank, Fidelity Bank, Stanbic IBTC, Sterling Bank, and Union Bank. The banks recently released their third-quarter interim results.

Deposit money banks have complained bitterly over the central bank’s frequent CRR debits chalking off significant amounts of cash that they could have earned on.

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READ: Union Bank releases Q1 2020 result, records 14% profit increase

A Nairametrics report indicates banks suffered CRR debits of over N1.9 trillion in the second quarter of 2020, taking the total amount of customer deposits held by the CBN at about N6.5 trillion.

The figure is likely higher now as more CRR debits have occurred in the third quarter of the year. Nairametrics reported banks were debited N226 billion CRR debit in a recent update provided by reliable sources.

However, as the above report indicates, the banks still earned more this year compared to 2019. Where banks may have suffered dips is in net interest margin, a measure of the percentage of income banks earn after netting off the cost of funds.

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READ: Nigerian Banks issue N3.3 trillion in new loans in June 2020

However, this has also been largely mitigated by low deposit rates even as banks maintain most of their lending rates.

Despite the rise in net interest income for the collection of banks under our review, some banks individually faired worse in 2020 compared to 2019. FBNH, Stanbic IBTC, and Access Bank all recorded lower net interest income in the first 9 months of 2020 compared to the same period in 2019. Significant gains over the prior year were however recorded with the other banks.

READ: Access Bank Plc posts N102.3 billion profit in 9M 2020, up by 15.7% YoY

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What is driving Margins

Banks are recording higher net interest income largely because interest rates on deposits are at near-record lows.

Stanbic IBTC

This drive down in the cost of funds helps boost the income of banks because they are also yet to significantly drop their lending rates.

In the first 9 months of the year, the banks reported total loans and advances of N1.6 trillion, 14% higher than the N1.4 trillion reported at the end of 2019.

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READ: FBN Holdings Plc posts Profit of N21.9 billion in Q3 2020

Banks have also reported generally improved pre-tax earnings, posting a combined N737 billion in the first 9 months of 20120 compared to N723 billion in the same period last year.

The better than expected results has triggered a boost to their share price. Banks have also seen their share price rally in recent weeks as investors finally recognize their low valuations amidst strong earnings.

The Banking sector index is up 14.72% year to date and only fell last week after investors embarked on cashing out their profits.

Explore Data on the Nairametrics Research Website

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Debt Securities

Interest rates will remain low until the end of H1 2021 – Meristem Securities

Meristem Securities has argued that interest rates will remain low until, at least, the end of H1 2021.

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Why Emefiele’s interest rate policy is ‘great’

Meristem Securities has asserted that interest rates will remain low until, at least, the end of H1 2021.

This statement was made at the recently held webinar on Global Economy and Outlook, which the company themed: Bracing for a Different Future.

Although the company acknowledged that there is mounting pressure for upward movement in yields from several stakeholders, it appears the company concurs nothing concrete is in sight.

This line of reasoning seems to have influenced their decision to advise investors to move away from Treasury instruments.

What they are saying

Meristem advises that:

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  • “Buy and hold strategy investors seeking to generate above average returns should move away from risk free Treasury instruments and focus on investment grade commercial papers and bonds which satisfy investment objectives.”
  • “Active traders with higher risk appetite are advised to focus on high-yield short duration instruments, which would be re-invested into a higher yield environment should rate reversals occur.”

The advice regarding shunning Treasury instruments appears to be in order, considering that treasury bill rate has been declining, with the latest figure — November 2020 — 0.03% as per the CBN monthly interest rate data.

Further checks from the Debt Management Office website, indicates that the latest figures for Eurobonds and Diaspora bond fall short of the fixed yield at issue for all the different categories of bonds in issue.

What you should know

Latest figures from the CBN’s monthly interest rate indicate that:

  • Treasury bill rate has been on a steady decline for six months, down to 0.03% since the last rise (2.47%) in May 2020.
  • Fixed deposit rates (one, three, six and twelve months) have also been declining – the latest figures for these indicate that in November 2020, one-month deposit rate was 1.92%, 2.9% for three months, 2.84% for six months, and 4.89% for 12 months.
  • Compared with the corresponding period in 2019, the figures indicate that these rates fell by 75%, 66%, 71% and 49% respectively.

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Financial Services

CBN issues framework for QR payments

CBN has issued a framework that would guide Quick response (QR) code payments in Nigeria.

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The Central Bank of Nigeria has issued the framework that would guide Quick Response (QR) Code Payments in Nigeria.

This is a proactive move by the Apex bank towards ensuring the safety and stability of the Nigerian Financial System, as well as promoting the use and adoption of electronic payments and foster innovation in the payments system.

READ: Over 1 million people took loans from banks below 20% interest rate in 1 year- CBN

Quick Response (QR) Codes are matrix barcodes representing information presented as square grids, made up of black squares against a contrasting background that can be scanned by an imaging device, processed and transmitted by appropriate technology.

The codes are used to present, capture and transmit payments information across payments infrastructure and further enable the mobile channel to facilitate payments and present another avenue for promoting electronic payments for micro and small enterprises.

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READ: Binance offers DeFi coders $100,000; DeFi market value hits $8 billion

What you should know

  • Quick Response (QR) codes are two-dimensional bar codes. QR code payments allow merchants to receive payments from customers simply by scanning generated QR codes using a smartphone camera. The QR code payments carry the purchase transaction information to the mobile device of the buyer/customer.
  • Making payments via QR codes is very secure. It is because the QR code is nothing but just a tool that is used to exchange information. Any data which is transferred via QR codes is encrypted, thus making the payment secure.
  • The Participants in QR Code Payment in Nigeria include Merchants, Customers, Issuers (Banks, MMOs and Other Financial Institutions), Acquirers (Banks, MMOs and Other Financial Institutions) and Payments Service Providers.
  • QR payments are increasingly becoming a popular means of payments in Nigeria, and some industry players would see the framework as a perfect way of regulating the sector.
  • QR codes are capable of storing lots of data. But no matter how much they contain, when scanned, the QR code should allow the user to access information instantly. It can be used for payments, sharing contacts and Wi-Fi passwords and lots more.
  • The popular and common argument is that since POS machines are expensive, cheaper options such as QR scanners should be pushed forward to local traders.

READ: Telecoms, FSI to hugely boost Nigerian Economy in 2021 – CWG’s Business Director

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Financial Services

CBN unveils framework for regulatory sandbox operations

CBN has issued a regulatory Sandbox framework towards engaging with the operators in the Fintech space.

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The Central Bank of Nigeria has taken proactive steps towards ensuring more flexible ways of engaging with operators in the payment solutions/fintech space, in a bid to tacitly regulate how operators churn out their new products and services.

To this end, CBN has introduced Regulatory Sandbox which is a formal process for firms to carry out live tests of new, innovative products, services, delivery channels, or business models in a controlled environment, with regulatory oversight, subject to appropriate conditions and safeguards.

It is expected that the CBN would stay abreast of innovations while promoting a safe, reliable and efficient Payments System to foster innovation, without compromising the delivery of its mandate.

What you should know

  • A regulatory sandbox is a framework set up by a regulator that allows FinTech start-ups and other innovators to conduct live experiments in a controlled environment under a regulator’s supervision. It encourages innovation that can improve the design and delivery of payment services.
  • No doubt, regulations around Fintech are still emerging and developing, there is still a high entry barrier for new entrants and it is expected that Sandboxes would present them with a safe testing environment and ease regulatory onboarding.
  • Sandbox is quite suited for new products, services or solutions that are either not contemplated under the prevailing laws and regulations, or do not precisely align with existing regulations.
  • Sandbox is intended to promote effective competition, embrace new technology, encourage financial inclusion and improve customer experience, with a view to engendering public confidence in the financial system.
  • The framework provides guidance on the establishment, the applicable rules and operations of a Regulatory Sandbox for the Nigerian Payments System, as well as providing standards for the operations of a Regulatory Sandbox, prescribes the processes and procedures for analysing, collecting, updating, integrating, and storing consumer data and information.

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