Don't Miss


Home   >   Market - Finance   >   Finance   >   Deposit mobilisation yields dividends

Deposit mobilisation yields dividends

By on April 14, 2014

Stung by the increasingly tight monetary policy measures of the Central Bank of Nigeria, which manifested in the hike in cash reserve requirement for banks and the sterilisation of a huge public sector funds, a number of operators decided to embark on aggressive deposit mobilisation especially in the fourth quarter of last year with a corresponding increase in their deposit base, as reflected in their 2013 financial results, writes Festus Akanbi

A clearer picture of how Nigerian money deposit banks handled the aftermath of the 50 per cent hike in cash reserve ratio in August last year and the decision of the Monetary Policy Committee of the Central Bank of Nigeria to tighten the noose further by raising the bar to 75 per cent on January 21 this year has emerged.

The tight monetary policy stance of the apex bank had raised the fear that the attendant sterilisation of public sector fund was bound to leave some banks dazed, especially as it happened in the last quarter of the year when banks naturally double efforts to meet their targets for the year.
However, the lid to the mystery of how banks approached the decision of the CBN to “mop” excess liquidity in the system was removed with the release of the 2013 full year results of banks which showed remarkable improvement in their deposit mobilisation.

Deposit Mobilisation to the Rescue
An analysis of the 2013 performance figures released so far showed that virtually all the banks have decided to take the issue of deposit mobilisation seriously as shown in the increase in deposit base although the degree of success recorded in this area varies from bank to bank.
Also, as the results made their way to the public, it becomes clear that the withdrawal of the public sector fund took the sail off the overall performance of virtually all the banks in terms of profit margin despite the modest improvement in their deposit mobilisation efforts.
One of the banks that took the bull by the horns in the aftermath of the hike in CRR was Access Bank Plc and it was not a surprise that the bank announced an increase of 11 per cent in its deposit base for the financial year ended December 31, 2013, according to its results released to the Nigerian Stock Exchange (NSE).

The report showed that the bank’s deposit base, which stood at N1.2 trillion the previous year, closed the financial year at N1.33 trillion.
Also, its loan book rose significantly by 33 per cent from N609 billion in 2012 to N810 billion in the year under review.
An analysis of the result showed that the bank’s earnings grew to N206.7 billion up from N206.4 billion in 2012, while its cost of funds recorded an improvement from 4.5 per cent to 4.6 per cent in the same period.
According to the bank, this demonstrates its resolve towards empowering critical sectors of the economy.

To show the effect of the new policy on CRR, the bank posted a profit before tax of N44.9 billion, which represented a 3.4 per cent drop compared to the N46 billion recorded for the corresponding period in 2012.
The bank attributed the decline to regulatory changes in the operating environment, some of which included the raising of the Cash Reserve Requirements on public sector deposits to 50 per cent from 12 per cent, reduction and removal of a number of fee income lines charges as well as the increase in the AMCON levy to 0.5 per cent.

United Bank for Africa Plc is another bank, which reaped bountifully from its aggressive deposit mobilisation in the period under review.
With a robust customer base, the bank swung into action in the fourth quarter of last year with a number of retail products which targeted different segments of the society including school children.

To show for this effort, the bank recorded a deposit of N2, 161,182 trillion for its 2013 operation as against N1, 720,008 trillion, an increase of 26 per cent in the preceding year.
Its full year results show a profit before tax of N56 billion in 2013, representing a 7.08 per cent increase over the N52 billion profit before tax in 2012. The bank also closed the year with total assets of N2.64 trillion, an increase of 16.23 per cent over the N2.27 trillion in 2012 while total equity increased by 22.1 per cent to N235 billion.

For Fidelity Bank Plc, the marginal increase in deposit base could not save the institution from a dip in profit margin.
Fidelity Bank Plc announced a 56.86 per cent drop in profit for the financial year ended December 31, 2013.

According to its 2013 results, deposits from customers totaled N808, 320 billion as against N 716,748 billion in 2012, a 13 per cent increase. However, the bank’s N9, 028 billion profit before tax for 2013 operation was 58 per cent lower than the N21, 349 billion posted last year.
The case is different with Zenith Bank which recorded spectacular increase in all its indices. The bank announced that its 2013 pretax profit rose to N110.59 billion ($673 million), up 8.3 per cent from the same period a year earlier, and it will pay a dividend of N1.75 per share. The bank posted a profit after tax of N95.32 billion, a marginal decrease of 5.32 per cent when compared with the N100.68 billion posted in 2012.

For its 2013 operation, the bank’s total customer deposits was N2,276,755 trillion as against N1,929,244 trillion in the previous year, an increase of 18 per cent.
For Diamond Bank, the tough operating environment occasioned by the sterilisation of public sector funds and other customer-friendly policies of the apex bank did not stop the bank from maintaining its positive showing. The bank, in its 2013 financials, recorded a three per cent increase in its deposit from customers, declaring N1. 206,844 trillion as against N910. 234 billion in 2012. However, the bank recorded a profit after tax of N54. 579 billion a remarkable difference from N31. 207 billion recorded in 2012.

First City Monument Bank declared a profit before tax (PBT) of N18.2 billion for the full year 2013, up 12 per cent from N16.2 billion for the same period in 2012. However, customer deposits went up 11 per cent YoY to N715.2 billion in December 2013 (N646.2 billion in December 2012).
Guaranty Trust Bank Plc’s customer’s deposits grew by a remarkable 24.3 per cent from N1.15 trillion in 2012 to N1.43 trillion in 2013. The bank however declared N107.09 billion pre-tax profit for 2013.

Stanbic IBTC, which posted a profit before tax of N11.412 billion for its 2012 operation recorded N24.617billion for 2013 financial year, a staggering 116 per cent increase. It was able to post a 17 per cent rise in its deposits from customers as it recorded N416.352 billion, an improvement over its 2012 figure put at N355.419 billion.
Wema Bank Plc which posted a profit after tax of N563.800 million as against a loss of N1.874,988 billion in 2012 had in its kitty customers deposit of N184.563.800 billion in the year under review, which represents a six per cent growth, as against N174.302.424 billion in the preceding year.

Sterilisation of Public Sector Fund
The CBN had last year begun the withdrawal of over N1 trillion public sector funds from deposit money banks as part of its new Cash Reserve Requirement policy.
The new policy, which called for the withdrawal of 75 per cent public sector funds in order to mop up liquidity in the system, was approved by the Monetary Policy Committee (MPC) recently in Abuja.
The Cash Reserve Ratio (CRR) was pushed from 50 per cent to 75 per cent while liquidity ratio and CRR on private sector deposits were also maintained at 30 per cent and 12 per cent respectively.
Since August 2013, when the CBN raised the CRR from 12 per cent to 50 per cent, banks have continued to struggle to source for deposit from private sector and individuals, through increasing interest rate of savings accounts and other facilities.

Public sector deposits with banks which only fell two per cent in October 2013, representing N3.99 trillion from September’s N4.06 trillion, stood at N4.02 trillion in November 30, 2013.
Other major reasons behind the policy, according to CBN, were the need to address the problem of excess liquidity in the banking system and to encourage the banks to mobilise savings from traditional sources, other than the public sector.

“We are thinking of encouraging our customers to deposit with us through the possibility of increase on interest paid on deposits. This will guarantee cheap funds that will enhance our deposit base,” an operator said at the weekend.
“The increase in the CRR on public sector deposits means that the days of banks being able to make very easy returns (mobilising public sector deposits and reinvesting these in high-yielding government securities) are likely to be over. Banks will have to work a little harder to mobilise liabilities.

“Given the nature of the Nigerian economy, public sector deposits – available in sizeable quantities – are easier to attract than private sector liabilities, where scale varies considerably. “Initial tightness in market liquidity should see banks bidding up deposit rates in order to attract liabilities,” said Razia Khan, analyst with Standard Chartered Bank, London.

She further said, “In effect, it suggests a more difficult environment for the larger banks that have traditionally been more dependent on public sector deposits. Margins are likely to come under pressure in the near-term. Longer-term however, it should encourage Nigerian banks to intermediate more efficiently, and should be a positive development for the economy on the whole, helping to enhance the transmission of monetary policy.”

A memo from CBN dated September 5, 2013 when the CRR was increased from 12 to 50 per cent with reference BSD/DIR/GEN/LAB/06/039, which provided further guidance on the reporting requirements, said public sector deposits should include all Federal Government’s MDAs and Companies, State Government MDAs and Companies as well as Local Government MDAs and their companies.

The statement read in part: “Furthermore, for the avoidance of doubts, deposits from the following institutions should be regarded as public sector for this purpose: NNPC Joint Venture accounts; Sovereign Investment Funds Government MDAs/Companies’ Collection Accounts such as: Customs, FIRS etc., Pilgrim Welfare Board. All accounts belonging to government universities.”

Aggressive Mobilisation
As expected, the new threshold made it necessary for money deposit banks to initiate strategies to mobilise deposits from other sources in the economy.
Industry sources confirmed that the development had been attributed to the aggressive deposit mobilisation by banks, with a corresponding pressure on those in the marketing department of the banks. Already, some banks are said to have adopted a strategy that would hinge the monthly salaries and other emoluments on target set for their marketing staff.
However, the Financial Derivatives Company Limited (FDC) in a report had pointed out that: “Since Open Market Operations auctions have become costly, raising the CRR on public sector funds by 38 per cent is expected to tighten liquidity, thereby creating a funding gap. The DMBs’ initial reaction will be to scramble for funds to cover their positions.
There will also be a reduction in the use of OMO auctions as a mop-up strategy, which will be unnecessary in an illiquid market.”

Emefiele Confident
The outgoing Zenith Bank managing director, Godwin Emefiele, had said that “The banks are now left with the option of devising new strategies of mopping up deposits from the private sector, particularly the retail channels and from households that keep cash at homes.
“For that reason, we are all aware of the cash-less policy that was introduced to ensure that they are encouraged; the costs of keeping those costs in the banks are being reduced or the banks are bearing those costs themselves, and we think this will actually help the banks to mop up deposits.
“Deposit rates will go up, and to that extent, we expect that lending rates will go up; we believe that at some point, there will be a dampening effect on these and the banks will eventually bring down the lending rates just as we expect that deposit rates will come down over time.”
He noted that deposit rates would rise to the extent that bank savers would earn more, adding, “Unfortunately, lending rates too will go up.”
Emefiele argued that as the banks continue to focus on mobilising deposits from the private sector as well as the informal sub-sector of the economy, the rates would begin to decline.
He said, “We are aware of the fact that many have not still effectively adopted the formal banking arrangement.
“As we do this and encourage them to channel their funds into the banking sector, deposit rates will come down; as these come down, lending rates will come down, which will be for the benefit of the economy.”

 

 

[This Day]