Banks’ T-bills dealings reach 10-yr high

The appetite of commercial banks for Treasury bills has reached a new height, as they invested about GH¢11.27billion into the highly perceived risk-free instrument last year -- the highest investment in government bills for 10-years.

The value of banks’ investment in Treasury-bills for 2015 is about 33 percent more than it did the previous year despite a fall in T-bill yields, as a challenging and costly business environment has fuelled loan repayment defaults in the banking sector.

In the latest financial stability report of the Bank of Ghana, which captures this development in the banking sector last year, the increase of banks’ investment in Treasury bills contrasts sharply with their investment activities in other securities -- particularly shares and equities.

According to figures from the Bank of Ghana, while the entire investment portfolio of banks -- which reached GH¢14.25billion in 2015, has been going up year-on-year, investment in shares and equities tumbled last year, reflecting the disappointing performance of the capital market.

B&FT analysis of the banks’ balance sheets shows that in 2006 the portion of banks’ investment in Treasury bills constituted 39.2 percent of their total investment. Since then, however, the portfolio of investment in the bills has increased to 79.1 percent of total investments as at the end 2015. Meanwhile, the portion of banks’ investment into securities declined from 58.6 percent in 2006 to 18 percent last year while investment into shares and equities -- which was increased from 1.6 percent in 2006 to 3.4 percent of total investment portfolio -- has also been cut to 2.9 percent.

“Banks’ investment in securities as a share of total investment decreased to 18 percent in December 2015 from 26.4 percent in December 2014. Investment in Treasury bills as a share of total investment however increased to 79.1 percent in December 2015, from 70.2 percent in December 2014. Banks’ investments in shares and other equities as a share of total investment also declined to 2.9 percent as at December 2015, from 3.4 percent in the same period of the previous year,” the report noted.

Some banking practitioners have explained that the undying interest in T-bills has been its alluring yield -- currently standing at 22.6 percent, which they say is better than the over-35 percent interest charged on consumer loans amid increased provisioning in non-performing loans.

According to the Bank of Ghana, banks’ loan quality generally deteriorated in 2015 with an increase in the non–performing loans from GH¢2.72billion in December 2014 to GH¢4.52billion in December 2015, representing a year-on-year increase of 14.9 percent over the period.

The Managing Director of Cal Bank, Frank Adu Jnr., previously told the B&FT that his bank will increase its investment in Treasury-bills and cut lending to businesses as long as interest paid on short-dated securities remains at or goes above the present 25 percent.

But Ghana’s vice-president, Kwesi Bekoe Amissah Arthur has chided the banks’ dealings in government securities market, saying: “We need to mobilise savings from small households. Banks are too comfortable with fixed income and money market instruments. You don’t lend and mobilise enough, but return huge profits. Go beyond that; mobilise enough to help develop the infrastructure in this country”.

An entrepreneur and investment banker, Dr. Kofi Amoah who has a significant stake in a banking firm, has also called for a law to regulate banks’ dealings in government’s securities market.