By Babajide Komolafe

TIER 2 banks suffered N233 billion TIER 2 banks suffered N233 billion  decline in deposit in the first half of the year (H1 2017) owing to demand for higher deposit rate by customers. Banks’ customers were said to be pressurizing for higher deposit rate against the backdrop of the high interest rate regime created by the monetary policy of the Central Bank of Nigeria (CBN) in its quest to curb inflation and reduce demand for foreign exchange.


Financial Vanguard analysis of the H1 2017 financial statements of six Tier-2 banks namely Diamond Bank of Nigeria Plc, Wema Bank Plc, Unity Bank Plc, FCMB, Sterling Bank Plc and Union Bank of Nigeria Plc revealed that four of the banks recorded decline in total customers’ deposit during the six months period. The results also revealed that five of the banks recorded decline in current account deposit and four recorded decline in term deposits. However, five of them recorded increase in their savings account portfolio.

Total customers’ depositWema Bank led the decline in customers’ deposits, losing 10.9 per cent or N31 billion of its total deposit, which fell to N252.7 billion at the end of June 2017, from N283.3 billion recorded in the preceding half   (at the end December 2016, H2 2016). Unity Bank followed with 10 per cent or N10 billion drop to N254 billion from N264 billion; FCMB recorded 3.7 per cent or N25 billion drop in deposits to N633 billion at end of June 2017, from N658 billion as at December 31st  2016; Diamond Bank on its part recorded 1.8 per cent or N25 billion decline in deposit to N1.39 trillion as at June 30 2017, from N1.42 trillion as at December 31st  2016.However Union Bank recorded 15.3 per cent or N101 billion increase in deposits to N759 billion from N658 billion during the six months period. Similarly, Sterling Bank recorded 4.2 per cent or N25 billion increase in deposits to N609 billion from N584 billion.

Current accounts depositsFurther analysis revealed that all the banks except Union Bank  recorded decline in current account deposits.    Wema Bank’s current account deposits recorded 11.4 per cent or N10 billion decline  to N78 billion at end of H1‘17 from N87.9 billion at end of December 2016. Unity Bank followed with 10.6 per cent or N13 billion    decline,    to N110 billion from N123 billion;    FCMB recorded 7.7 per cent or N93 billion decline to N286    billion from N310 billion; while Diamond Bank recorded 4.0 per cent or N28 billion decline,    to N697 billion from N726 billion during the six months period. Union Bank, however, grew its current account deposits by 35.9 per cent or N93 billion to N352 billion from N259 billion during the same period.  Term depositsFurther analysis showed that four of the six tier-2 banks recorded decline in term or fixed deposits in    H1‘17.

These include Wema Bank which recorded 16.9 per cent or N24 billion decline,  to N118 billion from N142 billion; Sterling Bank recorded 6.9 per cent or N14 billion decline to N188 billion from N202 billion; Unity Bank declined 4.5 per cent or N4 billion to N85 billion from N89 billion; while    FCMB    recorded 4.8 per cent or N10 billion decline,    to N197 billion from N207 billion.Diamond Bank was however able to grow its term deposits by 27.6 per cent or N55 billion to N254 billion from N199 billion. Similarly, Union Bank recorded marginal increase of N1 billion in its term deposits to N231 billion from N230 billion.

Savings accounts depositsThe six banks, with exception of Diamond Bank were able to grow their savings deposits, which collectively rose by 7.4 per cent or N64 billion to N924 billion at end of June 2017 from N860 billion as at December 31st  2016.Unity Bank led the increase in savings deposits,    recording 8.6 per cent or N4 billion increase to N50 billion from N46 billion. FCMB came second recording 7.1 per cent or N7 billion increase to N150 billion from N140 billion. Wema Bank recorded 4.4 per cent or N2 billion increases to N47.2 billion from N45.4 billion; Union Bank recorded 4.1 per cent or N7 billion increase to N176.4 billion from N169 billion during the six months period.Diamond Bank however recorded 10.4 per cent or N52 billion decline in savings deposits to N447 billion as at June 2017 from N499 billion at end of December 2017.  Interest rate challengesThe banks blamed the decline in deposits, especially term deposits on the high interest rate on government securities induced by the restrictive monetary policy of the CBN. In a bid to checkmate inflation, which rose to a peak of 18.72 per cent in January, restrained demand for foreign exchange as well as attract foreign currency inflow from foreign portfolio investors, the CBN had kept its Monetary Policy Rate (MPR) at 14 per cent since July 2016 while offering treasury bills at interest rates as high as 20 per cent.

In response the banks said they had to rebalance their deposit portfolio away from expensive deposits to cheaper deposits represented by savings deposits.  Banks reactChief Financial Officer, Wema Bank Plc, Mr. Tunde Mabawonku said: “One of the key things that happened in 2016 and first half of 2017 has been the increase in interest rate. We see customers increasingly benchmark Treasury Bill rates. When customers bring deposits now, and you offer them 11 or 12 per, they will complain that the rate is too low, that if they put their money in treasury bills at 18 per cent, they will get better yield and better traction.

So customers are becoming more aware and they are benchmarking interest rate. They now reason, if I can put my money in federal government treasury bills are 17 per cent, why should I put my money in your bank at 10 per cent. So banks have had to increase their deposit rates in order to match the sovereign rate.”Executive Director at Wema Bank, Mrs. Folake Sanu, also said that the decline in the bank’s deposit portfolio was a deliberate effort to change the structure of deposit, giving priority to low cost deposits as against term deposits.“We are trying to manage high costs of funds that are prevalent in the industry, focusing basically on retail market through savings and current accounts, instead of bloating the deposit base with huge term and time deposits.”Similarly, Unity Bank said its focus is not on term deposits but savings deposit. In response to Financial Vanguard enquiries, the bank’s Head of Corporate Communications, Matthew Obiazikwor said: “The decline in the term deposit is marginal. However, the bank’s strategy is not on term deposits but on sustaining savings account growth and increasing volume of transactions which enables the institution withstand occasional market shocks.“On the other hand, the bank grew its current accounts deposits within the period as N10 billion was moved from the current account balances to fund collateralized transactions in the form of letters of credit.

The increase in the saving account underscores the bank’s focus on sustainable deposits as it leverages large pool of available retail segments of market to mobilize low cost, staple deposits from critical mass as against termed deposits which are purchase funds.“The bank capitalizes on its network of branches: 133 branches for its North Bank; 84 branches for its South Bank to drive saving accounts growth. It has also deployed DSA channel across most of its 217 Branches to mobilize savings deposits, aside from customer-centric products that connects with various lifestyle benefits specific to different market segment. In its drive for financial inclusion, the strategy for Students and Youth markets acquisition has continued to attract the segment coupled with effective card deployment – Mastercards, Visa and Verve to rev up transactions on saving accounts.”  Diamond Bank, however, blamed the decline in its current and savings deposits on the inflation.

The bank in a press release announcing its H1 2017 results said: “Although customer deposit base shrunk by 1.8 per cent from N1.4 trillion to N1.3 trillion within the period, reflecting the effect of the inflationary spiral on savings, deposit from other banks surged by 31.9 per cent to N136.4 billion from N103.4 billion, reflecting strong confidence and trust on Diamond Bank as one of the systemically important banks in the economy.”Union Bank however said that it was able to increase deposits from customers due to its transformation programme.

The bank in response to Financial Vanguard enquiries said: “This significant increase observed in our savings, current and term deposits as indicated in our H1 2017 results can be traced to the bank’s transformation programme over the last three years which involved upgrading our banking platforms and channels, repositioning our brand and revamping our products portfolio to better align with customer needs and current market realities.  “This has resulted in greater customer acceptance of the bank on the back of an improved bouquet of innovative products and services based on a better understanding of customer needs through targeted customer research as well as  an up-skilled workforce  and upgraded platforms leading to improved customer service and a better customer experience in total.”On its part, President,
Bank Customers Association of Nigeria (BCAN), Mr. Uju Ogubunka, said that the decline in deposits was due to a combination of high interest rate, decline in customer income and increase awareness among bank customers on how to leverage on government securities to get maximum returns on their savings.Speaking to  Financial Vanguard, he said: “Many factors are responsible for this. Yes, treasury bills rate is one of them. People now move their money to TBs and other high yield instruments because they are also low risk investment. But this is also because there is no alternative investment option especially due to the economic situation hence the only way to maximise investments with low risk is TBs“Another factor is that customers are getting more enlightened. Some of the enlightenment and educative programmes we are doing at BCAN are now yielding results.

Before now some people don’t even know they can move their funds to TBs. But now they know and they are acting on this knowledge. Also the decline in economic activities has reduced the income of consumers. People are not making income as they used to do. And you know that savings is a function of income. As a result, people are not leaving money in current account or savings account as they used to do. This is compounded by the fact that the high prices of goods and services make people to spend more money on same quantity of goods.”

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