Following the recent increase in Monetary Policy Rate (MPR) to 13 per cent, the prime lending rate in the banking sector reached 12.29 per cent in June, the highest in seventeen months.
Prime lending rate has continued to witness steady increase since January 2022 amid mounting inflation rate.
Prime lending rates are the interest rates that commercial banks charge their most creditworthy customers, generally large corporations.
The CBN had increased the MPR or interest rate to 13 per cent in response to global inflationary pressures, which had continued to hurt economies around the world.
Despite increasing prime lending rate, CBN numbers revealed that the maximum lending rate dropped to 27.61 per cent in June 2022 from 27.37 per cent reported in May 2022.
Analysts noted that the move is meant to attract more lending to customers.
Maximum lending rate dropped to 27.37 per cent, a 0.42 basis points decline from 27.79 per cent reported by CBN in April 2022.
In addition, interest on saving deposit as of June 2022 hits highest figure at 1.38 per cent as of June 2022 from 1.37 per cent reported in May 2022. The interest on saving deposit had opened the year at 1.25 per cent, gaining 0.12 percentage points Year-on-Year (YoY) from 1.81per cent reported June 2021.
The maximum lending rate refers to interest charged by banks for lending to customers with a low credit rating.
The CBN had mandated commercial banks operating in the country to submit their lending and saving rates for publishing.
As published by the CBN in April 2022, the average interest rate paid by commercial banks on savings is 1.15 per cent with only Heritage Bank and SunTrust Bank paying more than four per cent.
For lending, CBN often provides guidance on rate bands, with maximum and prime lending rates often the guide.
According to April interest rate, Union bank of Nigeria with 49 per cent; Stanbic Bank/ FCMB, 42 per cent; Keystone, 35 per cent; Sterling bank Plc, 33 per cent; Wema bank, Zenith Bank Plc, Ecobank, 30per cent and Access bank, 28.50 per cent have the highest general lending rates (maximum).
On a flip side, Coronation bank, 12 per cent; FBN merchant, 17.50per cent; FSDH Capital, 19 per cent; SunTrust bank, 20 per cent and Globus Bank LTD, 21 per cent and Citi Bank, 22 per cent are the six cheapest general lending rates(maximum).
Experts noted that commercial banks are adjusting to hike MPR and increasing interest on saving deposit to win more deposit.
The Deputy Governor, Financial System Stability, CBN, Aisha Ahmad, who is a member of the Monetary Policy Committee (MPC) in her personal statement at the end of May meeting stated: “Sustaining banking sector lending to critical sectors of the economy will be paramount as monetary policy tightens to contain inflation.
“Given the positive correlation of market lending rates to the MPR, it is expected that borrowing costs will rise, possibly restricting loan growth.”
The President of the Association of the Capital Market Academics in Nigeria (ACMAN), Professor Uche Uwaleke in a chat with THISDAY maintained that the decline in maximum lending rate to excess liquidity in the banking sector, stating that the interventions by CBN also forced banks to cut interest rate on loans to customers.
He explained that, “When the money supply is high, it is expected to translate into low interest rates on lending to Bank customers.
“The numerous interventions by CBN have forced down interest rates in the banking sector. The CBN has a lot of its intervention at single digit interest rate; moved from nine per cent to five per cent. When the CBN should have ended that regime of five per cent lending rate, it extended it further.
“The CBN has been extending loan facilities to key sectors of the economy and a lot of interventions are accessing these funds at single digit interest rate. The banks were forced to reduce interest rate in order to remain relevant in their major core business of lending to the real sector.”
He said that the gap between saving and lending rates is massive, stressing that the CBN management have expressed concerns.
The CBN Governor, Mr. Godwin Emefiele had admitted that the hike in MPR would increase cost of borrowing, especially in non-priority sectors of the economy.
Emefiele, however added that lending to key priority sectors, which had been identified to boost growth and generate employment, would remain at a single-digit interest rate of nine per cent.
He pointed out that the decision to raise interest rate was the last resort and a difficult one for the MPC, which had been crafting policies to stimulate economic growth as well as achieve financial stability.
He said the CBN had adopted a contractionary monetary policy stance in view of the aggressive rise in inflation in recent times, which had led to high food and commodity prices in the country.
Emefiele noted that CBN’s action was aimed at curbing inflation, on the one hand, and supporting growth of the economy, on the other. He said the MPC was in a dilemma in arriving at a decision to raise the lending rate. As a result, the apex bank governor explained, a drastic measure such as raising the benchmark lending rate was required to reduce monetary expansion in order to tame inflation.
He assured that though inflation was expected to maintain an aggressive acceleration in the coming months, the central bank would not hesitate to return to its accommodative stance whenever it saw a reduction in the headline index.
