Savings Deposit Rate Cut to Relief Banks Funding Pressure
Analysts have said that the reduction in savings deposit rate will provide a momentary relief for Nigerian banks amidst earnings pressure.
Yesterday, the Central Bank of Nigeria (CBN) published a circular announcing a revised minimum rate of 10% (per annum) of MPR on local currency savings deposit.
This was against its previous minimum of 30% of MPR per annum, which thus translates to a new rate of 1.25% from 3.75% previously.
The apex bank linked the revision to a further step in stimulating credit flow to the real sector.
In a note, analysts at ARM Securities Limited said this policy action did not come as a surprise to as they had previously indicated a possible reduction in deposit rates to boost money supply (in turn, economic growth) given the ineffective transmission of the MPR.
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That said, analysts said this revision came in handy for Nigerian banks especially in a period where earnings are being squeezed by CBN regulations.
Meanwhile, the earnings squeeze due to the CBN tightening has been exacerbated by the impact of covid-19 on the economy and lower oil prices.
“Almost all the banks within our coverage have restructured sizable portions of their loan book due to the effect of the covid-19”, ARM Securities stated.
Nonetheless, the investment said it sees potential for decline in funding cost across all the banks.
ARM Securities said the biggest beneficiaries across its coverage name are FBNH and UBA with savings deposit base of N1.6 trillion and N1.0 trillion respectively.
“We have updated our models to reflect the revision. Our adjustment translates to increase in fair value of all our coverage names”, analysts said.
However, the firm noted that the degree of impact varied with respect to size of each bank’s savings deposit.
“We continue to favour GTB and Zenith given their adequate buffers to withstand the prevailing pressures.
“Particularly, both banks continue to command better return on equities than their peers”, ARM Securities stated.
Savings Deposit Rate Cut to Relief Banks Funding Pressure
