Wednesday, September 26, 2018   05.40PM / Temitope Babalola, Research Desk 

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Executive Summary 

Financial intermediation in any economy islargely impossible without any sound financial system.  Moreover, with theback dialing  in the cycle, analyzing and taking an in-depth look into thefinancial performance of banks have become inevitable.  

Thus, this edition of the Proshare Confidentiallooks at the performance of Deposit Money Banks (DMB’s) for the first half of2018.  Amongst many indicators that came to light, the study discoveredthe growing dominance of corporate banking (product wise) and we alsohighlighted the growing size of ‘the Treasury’.    

The study showed an aggressive mobilization torecover loans on the part of DMBs as they churned up N1,385 billion in totalinterest income and N1,1278 billion in total operating income; which is 1.19%and 1.09% of 2017 Gross Domestic Product respectively.    

It appears that there is   apersistent tilt towards income from government securities from the DMB’seither as a direct attempt to hedge against the possible dip in interestincome on loans or as a viable investment option given the economic realities.

Most DMB’s are preoccupied with reducing loanassets and increasing the hold of treasury bills. This improves the amount ofliquid assets on the one hand and also improves their loan to deposit ratio,  as most  DMB’s went to work to  clean  up their  balance sheet.  

The recovery in oil prices coupled with theability to veer off the real economy has led to a diminishing in non-performingloans.  Therefore, they have been an improvement in the micro prudentiallevels of the bank.

There current policy response to macro-economicdynamics have forced DMB’s to resort to  replenishments strategies -locking into short term maturity, especially  risk-freeinstruments. This is largely reflected in their cash flowstatement(s), showing an improved pool of  marketable asset; which reducesthe room of mismatch of risk. 

The report showed astrong  correlation between low interest deposit expense and cost toincome ratio, banks with relatively low interest deposit expense ratiohave  low cost  to  income  ratio.  Thus, banks withrelatively low cost of borrowed fund tend to have a low  cost  toincome ratio. 

This would perhaps be the clearest justificationfor the cautious  attitude of DMB’s to  the  real sector which  remain  a  headwind  to  privateinvestment.  It also hints to the fencing of  financialintermediation, especially to the informal sector. 

The  report  highlighted the  softening  in  the interbank call rate as the election cycle  draws  closer,  underlining the rising  liquidity, thereby, forcing DMB’s to resort to indirect tools to  manage the rising liquidity.

As a follow through, the report  also commented on the CBN’s intention  to  use  its  base money  to  create  a scaffold  for  growth and  reduce  unemployment moving  forward. 

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PreviousProshare Confidential Report (s)

1.      AMCON and Financial Services Debt Burden in Nigeria – Jul 2018

2.     PovertyTracker and Nigeria: Raising The Red Flag – Jun 2018

3.     POCKET Economics: Addressing Income Inequality – May 2018

4.     TheSilent Drug Epidemic: A Gathering Storm - Apr 2018 

5.     JudgingIMF’s Position on Development Indices – Mar 2018

6.     MoneyMarket: The Folk Road – Feb 2018    

7.     TheHeadache of Missing Targets – Jan 2018

8.    2018Outlook on the Nigerian Economy: The Need for an Even Keel – Dec 2017

9.     NigeriaExternal Economy and the White Noise of Import Dependency – Nov 2017

10. Statesand the Rising Weight of Debt – Oct 2017

11.  MoneySupply: Reeling from Policy Response – Sep 2017

12. HowRail and Energy Will Deliver a Robust Economy for Nigeria – Aug 2017

13. TooBig Government: The Hysteria of Developmental Quagmire – Jul 2017

14. TheNigerian Debt Conundrum and the Need for Automatic Stabilizers – Jun 2017

15.  ArticleIV vs. ERGP - The Third Way – May 2017

16. LiftingThe Veil off The Financial Sector – Apr 2017

17.  TowardsAn Economic Model for Nigeria; Going Beyond Symptomatic Responses - The PanamaModel – Mar 2017     

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