Mr. Godwin Emefiele, Governor of CBN

Nigerian banks raise lending rates to 30.70%, pay less interest to depositors

*Deposit Money Banks paid less deposit interests to depositors, investors, says CBN

*Money market rates generally stable, moved in tandem with level of liquidity in Q1 2020

Isola Moses | ConsumerConnect

In a seeming a rip off of the consumers of financial products and services in the country, the Central Bank of Nigeria (CBN) has disclosed that the country’s Deposit Money Banks’ (DMB) loans to customers were priced between 15.01 percent and 30.70 percent in the first quarter of 2020.

The CBN’s economic report for the quarter indicated that the lenders, however, refused to pay more interest on customers’ deposits within the period.

The report released at the weekend showed the average prime and maximum lending rates rose by 0.02 percentage point and 0.47 percentage point, respectively, to 15.01 percent and 30.70 percent, in the review period, above their levels in the preceding quarter, according to The Nation.

It was gathered that the average prime and maximum lending rates stood at 29.98 percent and 14.99 percent respectively in the fourth quarter of 2019.

On the development in the money market, analysts said the rising lending rates, led to upward pressure on market rates and cost of production in the manufacturing sector of the economy.

Despite the rise in lending rates, the Bankers’ Bank stated that the banks were paying less deposit interest to depositors.

The average term deposit rate fell by 1.46 percentage points to 6.27 percent. The spread between the average term deposit and average maximum lending rates widened by 1.93 percentage points to 24.43 percentage points.

The spread gap indicated that customers are paying 24.43 percent higher fee than they are getting from banks.

However, the Monetary Policy Rate (MPR), which is the benchmark interest rate at which the CBN lends to the commercial banks, is currently at 12.5 per cent.

However, in spite of the rise in lending rates of the DMBs, Mr. Godwin Emefiele, Governor of CBN, stated that the aggregate domestic credit (net) grew by 5.16 percent in June 2020 compared with 7.47 percent in May 2020.

The total gross credit in Nigeria rose by N3.33 trillion from N15.56 trillion at end-May 2019 to N18.90 trillion at end-June 2020.

According to the report, these credits were largely recorded in manufacturing, consumer credit, general commerce, and information and communication and agriculture, which are productive sectors of the economy.

The rise in interest rate reflected the liquidity condition in the system, as the CBN explains that the inflation rate of 12.26 percent for March 2020 resulted in negative real rates for deposits, but positive real rates for the prime and maximum lending rates.

“With the headline inflation at 12.26 percent in March 2020, all deposit rates remained negative in real terms, while prime and maximum lending rates were positive in real term,” the report said.

The report showed that money market rates were generally stable and moved in tandem with the level of liquidity in the first quarter of 2020.

Daily interbank call and Open Buy Back (OBB)-discountable securities traded in the Nigerian Inter- Bank financial transactions- rates ranged from five percent to 7.24 percent and 1.77 percent to 21.02 percent, respectively.

Average interbank and OBB rates were 10.68 per cent and 12.08 percent, respectively. Other rates, such as the 7-day and 30-day The Nigerian Inter-bank Offered Rate (NIBOR), traded at averages of 11.74 percent and 9.81 percent, respectively.

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