Banks slash holdings in T-Bills

Following continuous fall in treasury security rates and the likelihood that rates will hover around the 12 and 13 percentage points margin for quite some time, banks are slashing their holdings in short-term security instruments.

According to the May 2017 Banking Sector Report by the Bank of Ghana (BoG), banks investments in Treasury Bills declined from 79.0 percent in April 2016 to 72.0 percent in April 2017. It is expected to reduce further.

Many analysts believe banks’ investments in treasury securities will reduce to about 65 percent by December 2017.

The financial intermediaries this paper learnt have been doing more interbank and overnight lending transactions to attract better yield. Some have also resorted to introducing enhanced credit facilities or loans to the consuming public to grow their interest income.

They began repositioning their businesses in April 2017 to do more lending due to the sharp drop in Treasury bill rates despite the high non-performing loans.

A Head of Treasury with one of the foreign banks in Ghana told this paper that the banks have no option than to consider their investments in short term securities in order to make adequate return on their bottom-line.

“This government is pro-business and their plan is to make more funds readily available to the private sector. We are therefore increasing our loans to e public to generate more revenue. In this lower interest rate regime my brother the way to go is to do actual banking by lending”

Lecturer and Financial Economist at GIMPA, Dr. Francis Atsu says the recent declining trend in the rate of the short term securities particularly the 91-day treasury bill is an indicative of certain macro-economic policies that might have propelled the country into the desired growth trajectory

According to the Bank of Ghana, in the early 90s, the short term treasury yield stood at approximately 22 percent, but by mid-2001 the country experienced a sharp increase in the rate to about 45.68 percent. However, between late 2000 and December 2006, the economy experienced a declined trend in the treasury rate to a single digit of 9.6 percent.

Dr. Atsu explained “the above variations in treasury rate are arguably driven by different political and economic ideologies. For instance, the incumbent government is considered by most liberal conservatives in the country as a good manager of the economy. Specifically, they are committed to the economic ideology of improving on the macroeconomic fundamentals, where the improvement in the latter would create a huge demand for massive infrastructure. Therefore, it is expected that treasury rate could decline further.”

Treasury yields suffered its largest weekly drop in 2-months this week. The 91-day bill dropped by 0.65 percent to 11.67 percent, from 12.32 percent last week.Similarly, the yield on the 182-day bill also softened marginally by 0.02 to 13.08 percent this week as against 13.10 percent last week.

However, the yield on the 2-year note remained unchanged at 17.00 percent.

Doobia.com says the ongoing march towards a low interest economy is making treasury bills unattractive to investors, some of whom are now seeking higher yields. The amount raised of GH¢877.52 million was below the target of GH¢940.00 million although investors tendered GH¢971.37 million. The government rejected bids worth GH¢93.85 million from investors who were seeking higher yields.