Banks Intensify Savings Deposit Mobilisation
Commercial banks are increasingly shifting their focus away from time deposits, to attracting low cost deposits from customers since the reduction in treasury bills yields, a report has stated.
This, according to the report is to enable them manage margin declines from the fall in treasury bill yields.
London-based Exotix Capital stated this in a report on Nigerian banks, after its analysts visited Lagos, where they met with six banks. The report was titled: “Notes from the field: Reasons to Be Positive.”
It explained that treasury yields have generally been declining in response to the Central Bank of Nigeria’s (CBN) less aggressive stance on liquidity tightening.
“For some banks, mix shifts (e.g. moving from large loans to smaller balances) could be a positive support for asset yields.
“The cost of funds is likely to fall in the second quarter (Q2) of 2018 as some of the expensive wholesale funding that the banks took on in October/ November 2017 matures.
“In addition, the cost of customer deposits has declined as current/savings account deposit collection has improved. Improving cost of funds is a key management objective for several of the banks.
Retail savers are being aggressively targeted to help achieve this goal.”
It revealed that one of the commercial banks that had been an active participant in the central bank’s swap scheme had indicated its willingness to roll-over its exposures.
“However, another indicated that its swap volumes were considerably lower than before.
“In any case, spreads on this business have declined, which will result in negative revenue momentum.
“However, the banks indi- cated that this can be offset by more customer-driven derivatives income.
“Corporate transactional activity has increased, and appetite for hedging has increased given the historical experience.
“Outsourcing is being adopted as a cost control tool, for example in relation to back-office processing/data centres, or to back-up generator capacity.
“We are also seeing banks taking a more focused approach; they are looking to be more active in the sectors where they have strengths and to
de-emphasise other segments where they feel the competition/ growth/ risk profile is unfavourable.
“In general, the view on asset quality is that it should be stable to improving during the year. Accelerating loan growth and lower interest rates, allied to higher oil prices, are key positive drivers.
“In addition, loan books have now become seasoned – most exposures are around 3-4 years old. The biggest stresses in the loan book took place in 2016, but now borrowers are doing better.”
The report also pointed out that the application of technology had helped banks to lower their customer acquisition and transaction processing costs, potentially opening up a much larger retail customer base for the financial institutions.
It also predicted that banks were likely to move to an exchange rate of N360/$1 in their financial statement this year, which according to the report could lift their non-performing loans (NPLs) or provisioning needs.