In the thick of the hectic macro economic problems and the rise in the monetary policy rates, commercial banks’ lending rates to customers that deserve loans reportedly recorded a 13.67 percent increase in January this year; a 1.99 percent year-on-year rise from 11.68 percent in 2022. The Central Bank of Nigeria’s “Money Market Indicators” showed that the figure in January was at a 24-month high, coming via the slopes of the Monetary Policy Committee (MPC) of the Central Bank’s increase in it’s MRC rate to about 17.5 percent.
Statistics indicate that the prime lending rate has been averaging 16.57 percent up from January 2006 until January 2023, acclaiming an all-time low record of 11.13 percent in March 2021 and its highest of 19.66 percent in November 2009. The overnight rate used by commercial banks in lending is how prime lending is usually determined. This rate also plays an important role in the operations of retail customers, as these rates primarily impact the lending rates for mortgages, personal loans, and businesses. In fact, the CBN Governor, Godwin Emefiele recently claimed that the increase in MPR would facilitate a rise in the cost of borrowing, most especially in the non-priority departments of the country’s economy.
CBN embraces the contractionary monetary policy due to recent inflation.
He however noted that lending to priority sectors, which has already been conceptualized to further enhance economic growth and boost employment rates, would still be at the 9 percent rate. According to him, the decision to increase interest rates is always the last resort and one, difficult for the Monetary Policy Committee that have been working on strategies to enhance economic development and stimulate financial stability. He also indicated that the CBN had embraced the contractionary monetary policy as a result of the recent inflationary surge that had recently catalyzed the high cost of food and other commodity prices.
With CBN Governor also pointing out that the Central Bank’s action was tilted toward curbing inflation, as well as supporting economic growth. He admitted that the MPC was being faced with a decisive predicament as regards increasing the leading rate. As a result, Emefiele noted that extreme measures such as increasing the benchmark lending rate were required to reduce the expansion of money and in the long run, curb inflation. In spite of the rise recorded in the prime lending rate, there was an overt decrease of 0.02 percent in the maximum lending rate.
FCMB & Stanbic IBTC top the commercial banks maximum lending rate.
According to a survey carried out by THISDAY, the United Bank for Africa Plc was recorded to have had the highest prime lending across the commercial sector, closely followed by Unity Bank plc. FCMB and Stanbic IBCT Bank were also reported to have had the highest maximum lending rate at 42 percent, closely followed by Keystone Bank Limited and Heritage Bank at 36 and 35 percent respectively. The Money Market Indicator further recorded a rise in the Savings Deposit from 1.25 percent in January 2022 to 4.29 percent in January this year. The imbalance between the maximum lending and rate of deposit has increased over time, especially since 2009.
In Nigeria, major corporations that are known to have lesser risk and consistent generation of cash are mostly offered prime lending rates and small businesses and individuals usually do not make this cut. Economic analysts have thus linked the rise in lending to the MPR surge and the extreme macroeconomic situation. Ayokunle Olubunmi, the head of financial institution ratings at Agusto & Co, pointed out that the circumspect increase in MPR had hugely influenced the average maximum lending rate since 2022. He further noted that the increase would definitely impact businesses and decrease the bank’s borrowing rate.
Hike in prime lending to affect the cost of business operations.
The Vice President of Highcap Security Limited, Dr. David Adnori, also noted that the difference between the CBN’s lending rate and that of the maximum lending was a major concern within the banking industry. Dr. Uju Ogunbunka, the President of Bank Customers Association of Nigeria also described the rise in the average maximum lending rate to uncertainties around the inflation rate amidst the current sociopolitical crisis. He stated that Nigeria’s economy had not improved enough to accommodate an increase in the lending rate, emphasizing that the prime lending hike would affect the cost of business operations.
Central Bank of Nigeria: Website