Nigerian banks have seen a dramatic 145% increase in their investment securities over the first nine months of 2024, driven by rising bond yields and a strategic shift towards lower-risk assets. A new analysis by BusinessDay reveals that investment securities — which include treasury bills, bonds, and other tradable financial assets — collectively amounted to N40.9 trillion for major Nigerian lenders, up from N16.7 trillion during the same period in 2023.
The surge in investment securities comes as banks capitalize on attractive yields in the fixed-income market, which have been elevated due to the Central Bank of Nigeria’s (CBN) aggressive monetary policy stance. With the country’s monetary policy rate (MPR) currently at 27.25% after the latest increase in September 2024, yields on bonds and treasury bills have spiked, offering more lucrative returns for banks that had earlier invested when yields were lower.
In addition to rising yields, the devaluation of the naira has also contributed to the growth of banks’ investment portfolios, particularly those holding foreign currency-denominated securities. These revaluation gains have further boosted the returns on their investments, providing an additional earnings driver.
Top Performers in Investment Securities Growth
Key banks have reported significant growth in their investment securities, with Ecobank Transnational, Access Holdings, and United Bank for Africa (UBA) leading the pack. Ecobank’s investment securities surged to N11.3 trillion, up from N4.9 trillion in 2023. Access Holdings saw a similar rise, growing its portfolio to N10.2 trillion from N4 trillion, while UBA’s investment securities increased to N6.4 trillion, up from N2.8 trillion.
FBN Holdings, GTCO, and Stanbic IBTC also posted impressive gains, with FBN Holdings seeing a 316% growth in its investment securities, from N1.06 trillion in 2023 to N4.41 trillion in 2024. GTCO’s securities rose to N2.51 trillion from N796 billion, while Stanbic IBTC saw a 137.5% increase, growing its investment securities to N354 billion.
Banks Benefit from Foreign Currency Exposure
Tesleemah Lateef, a banking analyst, noted that foreign currency-denominated investment securities, such as Eurobonds, have been a key factor in the growth. The revaluation of these assets, spurred by the weaker naira, has led to increased earnings for banks. “Investment securities have become a major contributor to banks’ net interest income, helping them manage risks compared to loans, which are inherently more volatile,” Lateef said.
Rising Interest Income Fuels Profit Growth
The impact of higher yields on investment securities has been reflected in the profitability of Nigerian banks. FBN Holdings’ after-tax profit more than doubled to N526.2 billion in 2024, compared to N234.1 billion in 2023. GTCO’s profit surged to N1.08 trillion, up from N367 billion, while Access Holdings posted a profit of N457.7 billion, up from N250.4 billion in 2023.
Other banks reporting strong growth in investment securities and profits include Zenith Bank, whose securities rose to N4.77 trillion, and Fidelity Bank, which saw a significant increase in both investment securities and after-tax profit.
Monetary Policy and Economic Challenges
The central bank’s tight monetary policy, designed to combat inflation and stabilize the naira, has played a crucial role in driving up fixed-income yields, benefiting banks that have shifted their focus towards investment securities. However, this policy environment is not without its challenges, as high interest rates and currency volatility continue to strain the broader economy.
Despite these challenges, Nigerian banks have shown resilience, leveraging their investment strategies to boost earnings and strengthen their balance sheets. As the CBN maintains its hawkish stance, analysts expect banks to continue benefiting from elevated yields in the coming months.
Investment Income Remains a Key Earnings Driver
Overall, income from investment securities has become a key driver of earnings for Nigerian banks, complementing traditional income from lending activities. With a continued focus on interest-earning assets and a favorable environment for fixed-income investments, analysts believe that banks are well-positioned to weather the current economic headwinds.
As of the end of September 2024, the naira was trading at N1,678.87/$ at the Nigerian Autonomous Foreign Exchange (NAFEX) rate, adding another layer of complexity to the market dynamics.
Summary of Key Banks’ Performance in 9M 2024:
- FBN Holdings: Investment securities rise to N4.41 trillion (+316%), after-tax profit up to N526.2 billion (+125%).
- GTCO: Investment securities rise to N2.51 trillion (+215%), after-tax profit up to N1.08 trillion (+194%).
- Access Holdings: Investment securities rise to N10.2 trillion (+155%), after-tax profit up to N457.7 billion (+83%).
- Ecobank: Investment securities rise to N11.3 trillion (+130%), after-tax profit up to N491.8 billion (+169%).
- UBA: Investment securities rise to N6.4 trillion (+128%), after-tax profit up to N525 billion (+17%).
- Zenith Bank: Investment securities rise to N4.77 trillion (+108%), after-tax profit up to N827 billion (+90%).
- Sterling Financial Holdings: Investment securities rise to N45 billion (+28%), after-tax profit up to N27.4 billion (+67%).
- Wema Bank: Investment securities rise to N766 billion (+33%), after-tax profit up to N52.7 billion (+174%).
- Fidelity Bank: Investment securities rise to N164 billion (+7%), after-tax profit up to N224 billion (+144%).
The growing focus on investment securities and the favorable yield environment highlight the increasingly important role these assets play in bolstering the financial performance of Nigerian banks.