Kayode Tokede
Following the hike in Monetary Policy Rate (MPR) to 24.75 per cent by the Central Bank of Nigeria (CBN), the banking sector average maximum lending rate rose to 29.38 per cent in March 2024, the highest since 2020.
According to the CBN money market indicator, the average maximum lending rate opened January at 27.07 per cent when MPR was at 18.75 per cent and dropped to 26.55 per cent when the Monetary Policy Committee (MPC) of the CBN hiked MPR to 22.75 per cent.
Maximum lending rate refers to the rate charged by commercial banks for lending to customers with low credit rating.
In 2020, the average maximum lending rate reached a peak of 30.73 per cent when the MPR rate stood at 13.5per cent
The average maximum lending rate had closed 2023 at 26.62 per cent on the backdrop of CBN hike in MPR to 18.75 per cent.
The unanticipated rise in MPR has impacted on the banking sector lending rate as the CBN sustained pressure in tackling inflationary pressure.
This unprecedented move has not only set the MPR at its highest level to date but also reflects the CBN’s determined effort to address the persistent economic pressures.
The decision has garnered praise from the International Monetary Fund (IMF), which commended the MPC’s resolve to tighten monetary policy further by increasing the policy rate to 24.75 per cent.
Such a strategic manoeuvre aims to curb the inflation surge, which recorded a year-on-year peak of 33.20 per cent in March 2024, and to mitigate the depreciative pressures on the naira.
However, the steep increase in the policy rate has sparked concerns regarding the potential impact on the cost of credit for businesses already facing economic hardships.
Each bank offers different lending rates that reflect their respective approaches to lending to the manufacturing sector in Nigeria.
Lending rates obtainable from the CBN’s website revealed that FCMB Bank has one of the highest average maximum lending rate in the manufacturing sector, followed by FSDH.
As of March 28, 2024, FCMB average maximum lending rate for the manufacturing sector stood at 40 per cent, while FSDH reported 38.50 per cent.
Also, Sterling Bank’s average maximum lending rate for the manufacturing sector stood at 37 per cent to join the top three commercial banks with highest manufacturing sector maximum lending rate as of March 28, 2024.
At 18 per cent, SunTrust Bank has the lowest average maximum lending rate in the manufacturing sector as of March 28, 2024.
In Nigeria, large corporations perceived as having lesser risk with a history of generating consistent cash flows are offered prime lending rates, while small businesses and individuals perceived as having higher risk typically fall above the prime lending rate margin.
Analysts have attributed the increase in lending to the hike in MPR and severe macroeconomy challenges.
The recent announcement, made by CBN Governor, Dr. Yemi Cardoso, had highlightd the central bank’s proactive approach towards monetary tightening amidst challenging economic conditions.
Investment Banker & Stockbroker, Tajudeen Olayinka in a chat with THISDAY said, the current high interest rate regime in Nigeria is the outcome of a deliberate policy of the central bank to encourage foreign inflows into Nigeria from foreign portfolio investors, in a way to increase accretion to foreign reserves and stabilize exchange rate of the Naira.
He explained, “This is the reason for rising interest rate in the economy, with continued repricing of securities across markets and instruments, including loans and advances by banks. So, high interest rate regime will remain with us for as long as it takes CBN to achieve its exchange rate and inflation objectives.
“I think its sustainability will guide CBN’s decision, going forward. For me, the huge debt service cost to the government and its further threat to inflationary pressure are clear indications that the policy may not be sustainable.”
Commenting, Economist and Investment Specialist, Dr. Vincent Nwani highlighted that banks’ lending rate (excluding charges & fees) moved from 21.79 per cent in June 2023 to 29.3 per cent in March 2024; “Inflation rate moved from 22.79 per cent in June 2023 to 31.7per cent in February 2024; Exchange rate moved from N760/$ in June 2023 to N1,450/$ in May 2024.
“All of the above depicts an extraordinary stress to businesses in the country across all sectors and the implication of this on the sustainability and competitiveness of the business is telling on the immediate and on the long term. Businesses are increasingly scaling down, cutting back employment and adapting all sorts of lean measures to navigate the rough dispensation and how long they will cope remains to be seen.”
On the way forward, he said, “On the immediate, the palliative measures for businesses earlier announced by the president should be implemented. In addition, we look to see some fiscal complementary and business friendly measures. For instance, regulatory related charges and fees should be reviewed, streamlined, and reduced in a bid to reduce financial burden on businesses.”
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