How to invest in Treasury Bills

Image result for images of treasury bill in Nigeria

Investors looking for passive investment in the country can sit back and make their money work for them by investing in Treasury Bills.
Treasury Bills(TBs) are a type of government securities issued on behalf of the Federal Government by the Central Bank of Nigeria(CBN) to control money supply in the economy.
But unlike other government securities such as Federal Government of Nigeria (FGN) Bonds and Federal Government Development Stocks(FRNDS) which are long term in nature, TBs are short term securities issued at a discount for a tenor ranging from 91 to 364 days, and they dont yield interest.

How does the discount work?
If you buy T-bills worth of N500,000 at 10 per cent discount rate, CBN will debit your account with N450,000, leaving a balance of N50,000.
“This means that your interest of N50,000 has been paid to you upfront.When your investment matures, you are still paid your N500,000.This shows that you were actually paid N550,000 for your investment of N500,000”, says

Tenor is the duration of the investment.It is how long you are willing to let your funds stay with the Federal Government.Tenor is usually in 91 days(3 months), 182 days(6 months) and 364 days(one year).Your investment matures after the expiration of the tenor.

How do I buy T-bills
According to CBN, T-bills can be purchased both at the primary and secondary markets. The following steps are the procedures  laid down by the apex bank:

Primary Market
This is where new issues of securities are available for sale. The market for new issues in all government securities is the Issues Office, Central Bank of Nigeria. Secondary market is a market for the trading of previously issued securities. Hence, tenors of the securities traded are shorter than the original tenors. In the case of treasury bills, the market is within and outside the Central Bank of Nigeria. The market in the CBN is located at the Securities Dealing Office and Settlement and Control Office, while the outside markets include banks and discount houses.

Primary market
All investments are by auction. Subscriptions at this market are for 91 days, 182 days and 365 days. “An advertisement, inviting bids for the securities, is placed in selected national dailies in advance of the auction. The amount of securities being applied for must have a minimum value of N10,000 and in multiples of N1,000 thereafter. Interested investors will have to obtain and complete application forms through authorized dealers (banks and discount houses ). Interested authorized dealers may submit tender on their own account or on behalf of their customers. Therefore, subscription is open to banks, discount houses, corporate bodies, institutions and individuals. Tenders for the T-Bills are submitted on Mondays, Tuesdays and Wednesdays before 1.30p.m on the prescribed printed forms and in sealed envelope marked “Tender for Treasury Bills”.

Pricing and allotment
Successful subscribers at the auction are allotted applying the Dutch multiple price auction system. Under the system, successful applicants pay for their allotment at the price quoted by them.
The result of the tender is announced before the close of business on Wednesdays. Allotment letters are issued to successful tenders on Thursday while payment in full for the amount of the successful tender must be made to the CBN not later than 1.30 p.m on the issue date , that is, Thursdays. The accounts of the authorized dealers which must be funded are debited with the cost.

Secondary market
The procedure for investing in T-bills here is done through the Open Market Operation (OMO).All investments are through auctions. Notice, inviting bids, is forwarded to licensed discount houses and banks a day preceding the auction. Subscriptions are open to the general public, that is,  banks/discount houses, government agencies, corporate bodies institutions and individuals. All applications must, however, be routed through licensed discount houses. The amount of securities being purchased must have a minimum value of N10,000 and in multiples of N1,000 thereafter. Each applicant must state the discount rate and the amount of securities being applied for.
Successful applicants at the OMO auctions are allotted using the Dutch multiple pricing system. Under this system, securities are allotted to applicants at the rate quoted by them. The accounts of the successful applicants are debited with the cost through the discount houses. Results of the OMO auction are announced through the discount houses and banks; and on the following day through the media. Authorised dealer banks, discount houses and other institutions that maintain accounts with the CBN have direct access to the apex bank. And they can also give mandate for automatic investment of idle funds on their accounts. Other investors would communicate their intention through the authorized dealers. Trading can be undertaken any day of the week during approved banking hours. Rates at this market are administratively fixed and as such are lower than rates obtained through auctions.

True yield
A true yield is calculated as the actual return on your investment. According to, the initial yield for N500,000 at 10 per cent is N50,000. “However, because your interest is paid upfront, your actual yield is the N50,000 divided by the N450,000 deducted from your account, multiplied by 100. That is 11.11 per cent, which is higher than the 10 per cent discount rate. You can only enjoy true yield when you hold your investment to maturity.”

Can I sell my T-bills before it matures?
If you are in urgent need of funds, you may sell your T-bills before it matures, using the OTC market. Whether you will sell for more or less of your face value depends on the forces of demand and supply. Here is an instance; a N505,000, (higher value) provided your face value is trading at a higher price. However you may have to sell at a loss (N545,000) if your face value is trading at a lower price.

Benefits of T-bills
Yield / Income on investment is realizable upfront and can be automatically reinvested for a higher income. Yield / Income on investment is competitive with returns on other money market instruments of similar maturities. The securities have zero-default risk. Yield/Income on investment is tax-free. The securities can be used as collateral for short-term borrowing from banks.

Sterling Bank drives down NPL to 2.8%   

…Eyes N35bn fresh capital in H2

Sterling Bank Plc has continued to benefit from its credit risk management and efficient cost management with its proportion of non-performing loans(NPLs) dropping to 2.8 per cent, just as the lender concludes plans to raise N35 billion tier 2 capital.
In its accounts for the first-half of the year released at the Nigerian Stock Exchange (NSE), the bank said the NPLs had dropped from the 4.8 per cent recorded same period last year.
The new NPL ratio of 2.8 per cent is far below the industry threshold of five per cent and represents one of the best in an industry challenged with non-performing loans.
The report also showed that the bank’s cost of funds declined to 4.7 per cent as against 5.9 per cent,
Key extracts from the reports show that net interest income increased by 31.9 per cent to N25.6 billion as against the N19.4 billion recorded during the corresponding period of 2015. This was driven by a 22 per cent decrease in interest expense resulting in a 1, 240 basis points improvement in net interest margin to 61.7 per cent. Non-interest income , however, reduced from N15.2 billion in the first six months of last year to N8.5 billion this year. Altogether, net operating income increased marginally from N30.2 billion to N30.5 billion. Profits before and after tax stood at N4.4 billion and N4 billion respectively.
The balance sheet of the bank continued to improve. Net loans and advances increased by 36.5 per cent to N462.3 billion largely driven by foreign exchange revaluation. Also, customer deposits increased to N627.9 billion from N590.9 billion. Total assets, excluding contingent liabilities, increased by 20 per cent to N959.2 billion by last June, as against N799.5 billion recorded in December.
Commenting on the results, its Managing Director, Mr. Yemi Adeola, noted that the bank has remained irrepressible as demonstrated by the strength of its core business.
According to him, the bank prioritized improvement in asset quality which was reflected by a 70 basis points, decline in the non-performing loans and a 100 basis point reduction in cost of risk. Cost of funds also declined by 120 basis points to 4.7 per cent. This was in spite of the foreign exchange liberalization policy, the attendant liquidity squeeze and the rising inflation rate which peaked at 16.5 per cent in June 2016.
He added: “The bank showed deeper pliability through the re-affirmation of its investment grade ratings at a time when corporate and sovereign ratings were under downward ratings pressure.
“As we look to the second half of the year, we remain committed to our plan to conclude our N35 billion tier 2 capital raising, prioritize operating efficiency and ensure moderate loan growth; while continuing to diversify funding sources as our retail banking strategy gains traction.”

NIDF pays N3.32 coupon to investors

By Tofunmi Adubi

Investors in the Nigerian International Debt Fund (NIDF) – a mutual fund listed on the Nigerian Stock Exchange(NSE) that invests in fixed income securities of Federal and State Governments – will get N3.32 per note as the Fund Managers, Afrinvest Asset Management Limited (AAML), has commenced the payment of the interim coupon for the 2016 financial year.
This represents the 37th coupon since the creation of the Fund in 1997.
According to Ola Belgore,the  Managing Director of AAML, “NIDF is consistent in dividend payment and it is declaring the sum of N18,610,753.79 as interim coupon to be distributed among subscribers in the register of the Fund as at June 30, 2016 at N3.32 per note. This in line with the structure of the NIDF, which is designed to pay coupons twice a year. The fund closed at N212.24 as at 30 June 2016”.
Belgore noted, “NIDF offers investors safety, capital preservation, steady returns, diversification and value, and has a consistent dividend history making it quite attractive for both individual and institutional investors such as Pension Fund Administrators (PFAs), insurance companies, asset managers and gratuity funds.”
In 2015, the NIDF was rated “A-” by Global Credit Rating Company (GCR). This rating by one of the leading global rating agencies is among the best for mutual funds in the market today.