CBN's T-bill slowdown may hurt banks profits, says Fitch

An international credit rating agency, Fitch Ratings, has predicted that the Central Bank of Nigerias Treasury Bills slowdown may impact negatively on banks profits in 2018.

The International agency on Thursday said that Guaranty Trust Bank Plc, Zenith Bank Plc, Access Bank Plc, United Bank for Africa Plc, among others, might find it more difficult to sustain profitability given the decline in net Treasury bill issuance in the first quarter of 2018 issuance programme of the Central Bank of Nigeria. Coupon rates on T-bills and bonds were reduced as the Federal Government looks to increase its financing from external sources and longer-dated domestic issuances. The slowdown in T-bill issuance marks a change of strategy as the Federal Government looks to increase its financing from external sources and longer-dated domestic issuances. In a statement on Thursday, Fitch said, We expect falling T-bill yields and lower issuance to put pressure on Nigerian banks profitability in 2018. The CBNs latest issuance schedule shows N1.1tn of rollovers in first quarter of 2018 against N1.3tn of maturing bills.

In 2017, rollovers fully covered maturing bills. Performance metrics at all banks will be affected by weak demand for lending, falling T-bill yields, lower foreign-currency translation gains and rising loan impairment charges, but the largest banks are best placed to withstand these challenges, Fitch said. Fitch said the record T-bill issuance in 2017 helped support the CBNs strategy to maintain stability at the foreign exchange market as global oil prices continued to rally.

The report said, High yields on T-bills issued in 2017 (around 13per cent-14per cent on 90-day T-bills) attracted investors and helped to support the naira. An increase in oil export earnings and the introduction in April 2017 of the Nigerian Autonomous Foreign Exchange Rate Fixing mechanism, commonly referred to as the Investors and Exporters FX Window (I & E FX), also helped naira stabilisation during the second half of 2017. Nigerian banks are highly reliant on net interest income for profitability and T-bills proved to be an important source of profits in 2017.

Fitch said as at nine-month ended September 2017, the Federal Governments  securities including T-bills represented more than 15 per cent of the banks  total assets as new lending fell, reflecting weak credit demand, tighter underwriting standards and banks reluctance to extend new loans as they focused on extensive restructuring of troubled oil-related and other portfolios.

(Punch)