CRR: Banks Target Optimised Deposit Mix to Counter Rising Funding Costs
Nigerian Deposit money banks (DMBs) have embarked on aggressive mobilisation of cheap deposit mix from the retail market to improve their respective funding mix following adjustment to monetary policy rate and cash reserves ratio.
Using interest rate payment on savings and current accounts as a bait, numbers of commercial banks are aggressively targeting customers’ wallets to reflate cheap funding sources.
Local lenders are positioning their respective brands to attract cheap funding mix after inflation forced the Central Bank of Nigeria (CBN) to tighten interest rate.
Last month, the Apex Bank raised cash reserves ratio for commercial banks to 50%, thus sterilizing half of every naira deposited by their customers.
With double-edged effects on income and experience, banks launched campaign targeting the combination of savings and current accounts mix.
Banks earnings spiked in the first half of 2024 due to loan repricing. Interest rate on old loans have been priced at the going market rate on the back of the CBN hawkish rendition.
At the same, interest expenses for fund providers have surged significantly with some low deposit collecting banks having negative run on costs of funds.
The most impacted operators in the banking sector are small lenders competing with the top big banks without special advantages to attract deposits.
A review of latest campaign obtained by MarketForces Africa revealed that some banks are offering to pay between 8% and 8.5% on savings account to attract deposits.
“Banks with strong retails footprints have lower cost of funds in the industry. That has given Tier-1 banks an unfair advantages over their counterparts”, analysts said.
The CBN decision to raise rates by an additional 50bps will further drive higher asset yields, Meristem Securities Limited said in an update, noting that banks benefit from the elevated interest rate environment, boosting returns on investment securities.
“While this will keep funding costs elevated, we anticipate that banks will continue their efforts to enhance their Current Account Savings Account mix to mitigate these pressures”, the firm said.
As a result, Meristem Securities said net interest margins are of the local lenders are expected to improve further. This trend was evident in the financial results for H1:2024, the firm said, adding that it expect the trend to persist going forward.
Additionally, recent financial performance under Meristem Securities coverage banks revealed that DMBs have been exploring other non-interest sources of income, including trading and FX gains.
Analysts at Meristem Securities Limited said for context, GTCO, ACCESSCORP, ZENITHBANK, and STERLINGNG recorded higher gains from trading investment securities. #CRR: Banks Target Optimised Deposit Mix to Counter Rising Funding Costs
