Nigerian banks have been investing heavily in T-bills, says Fitch

Global credit rating agency, Fitch, says Nigerian banks averaged a 7.5% margin on treasury bill (T-bills) yields in the first half of 2017 (1H17).

According to a statement released by the rating agency on Friday, banks have been investing heavily in T-bills since second half of 2016 (2H16), improving interest income and maintaining margins.

WHAT IS T-BILL?

• T-Bill is a short-term debt instrument issued by the federal government through the central bank to provide funding for the government. They are by nature, the most liquid money market securities and are backed by the guarantee of the Federal Government.

Fitch said T-bill yields have reduced in preceding weeks, numbering about 15.5%, compared to over 18.5%  recorded mid-year.

Projections from the report show that it might suffer further declines, regardless of policies by the CBN to reduce currency volatility.

“High yields on T-Bills are part of the Nigerian authorities’ attempts to control inflation and manage demand for foreign currency,” the report read.

“By providing a remunerative, relatively low-risk, naira-denominated investment (interest payments are tax-free), they (CBN) hope to encourage naira retention and dampen demand for US dollars.”

According to CBN data, T-Bill investments increased due to fall in volumes of naira time and savings deposits held by the banking sector.

T-Bill yields still ranked higher than savings deposit rates, which are capped at 30% of the current monetary policy rate of 14%, the report said.