Following a spike in inflation in April this year, Nigerian banks increased the maximum lending rate on loans and advances to customers from 26.61% in March 2022 to 27.79% in April, indicating an increase of 4.43% or 1.18 basis points.
THISDAY’s survey found that Nigerian banks have consequently increased lending to the real sector of the economy.
The Central Bank of Nigeria (CBN), in its “Money Market Indicators” data, showed a 0.51 percentage point increase in the average maximum lending rate to 27.79% in April 2022, from 27, 65% in January.
CBN data revealed that in the first four months of 2021, the maximum lending rate hovered around an average of 28.56%.
The apex bank in the first four months of 2022 maintained its monetary policy rate (MPR) or lending rate at 11.5%, but raised it to 13% in May, citing inflationary pressure that has risen from 15.7% in January to 16.82%. in April 2022.
The MPR hike was the first time in two and a half years that the country’s financial regulator’s policy-making committee would raise the rate.
The MPR is the base interest rate in an economy, while all other interest rates used in such an economy are based on it.
CBN Governor Godwin Emefiele in his statement at the end of the Monetary Policy Committee (MPC) meeting in May explained that members were concerned about the somewhat aggressive rise in inflation of nearly 90 basis points in April 2022.
According to him, “To mitigate expectations of inflationary pressures, the MPC has decided to shift from its historically cautious approach to interest rates to higher policy rates, while adopting a dovish approach to development finance initiatives that supported economic growth and a sustained recovery.
“The MPC is of the view that rates for the Bank’s development finance initiatives should remain at 5% until March 2023.
Therefore, regarding the decision to hold or not. tighten or loosen, MPC believes that easing in the face of higher policy rates in advanced economies could lead to a sharp increase in capital outflows and a faster drying up of foreign credit lines. »
MPC member, Professor of Economics at the University of Benin, Mike Obadan in his personal statement had argued that, “Further tightening of monetary policy will not tame inflation. lending rates from commercial banks, limit access to credit and hamper investment in real sectors of the economy.
“Indeed, a further tightening policy will run counter to the CBN’s objective of increasing investors’ access to cheap credit in order to foster economic recovery, spur growth, increase employment and to reduce poverty.
“On the other hand, easing monetary policy under the current circumstances could increase untargeted money supply growth and exacerbate inflation. The situation of low growth, high unemployment and incidence of poverty and double-digit inflation undoubtedly involves difficult policy choices.”
Meanwhile, analysts attributed the increase in the maximum lending rate to inflationary pressure, pointing out that the gap between the CBN lending rate and the maximum lending is huge.
Speaking to THISDAY, Vice Chairman of Highcap Securities Limited, Mr David Adnori said: “The spread is almost double digits and this indicates a serious quest for ranting within the banking industry. The gap between the maximum lending rate and the MPR shouldn’t be more than 10%, but when you have anything over 100%, that means there’s serious rent-seeking activity in the industry. banks that erode the country’s resource economy. »
On his part, PAC Holdings analyst, Mr. Wole Adeyeye, said, “A lot of countries like the United States, Ghana among others have raised their policy rate and Nigeria cannot operate in isolation. banks reacted to the rising inflation rate and increased the maximum lending rate to 27.79% in April 2022.”
Similarly, the Chairman of the Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogubunka, attributed the increase in the maximum lending rate to the surrounding uncertainty and rate of inflation in the business environment amid political tensions in the country.
Ogubunka, who was the former Registrar/Chief Executive of the Chartered Institute of Bankers of Nigeria (CIBN), said Nigeria’s economy in 2022 has not seen major improvement to justify a hike in the bank lending rate. to the real sector.
Ogubunka further explained that the banks have chosen to increase the rate on savings deposits to attract savings since the funds are not available.
Meanwhile, CBN data indicated interest on savings deposits closed April 2022 at 1.28% from 1.25%, representing a 2.4% increase in performance since the beginning of the year (YtD).
The date revealed that the one-month deposit fell to 2.96% in April from 3.79% in January, while the three-month deposit closed in April 2022 at 4.44% from 5% in January 2022 .
Ogubunka asked, “How many bank customers still save money in the bank? It’s a demand and supply problem. If the customers don’t give to the banks, they don’t won’t have enough to lend to the real sector.
“Normally, if there’s a surplus in the system, the prices go down, but if you don’t have enough and there’s a demand, you raise the rate. I think what’s happening now, it’s that so many bank customers are incapacitated that they can’t save because of the rate of inflation, among other things.”