Following a spike in inflation in the month of April this year, Nigerian banks have increased the maximum lending rate on loans and advances to customers from 26.61 per cent in March 2022 to 27.79 per cent in April, indicating an increase of 4.43 per cent or 1.18 basis points.
THISDAY investigation revealed that Nigerian banks have as a result 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 per cent in April 2022 from 27.65 per cent in January.
The CBN data revealed that in the first four months of 2021, the maximum lending rate was hovering around an average of 28.56 per cent.
The apex bank in the first four months of 2022 maintained its Monetary Policy Rate (MPR) or the lending rate at 11.5 per cent but increased it to 13 per cent in May, citing inflationary pressure that moved from 15.7 per cent in January to 16.82 per cent in April 2022.
The hike in MPR was the first time in two and a half years that the policy-setting committee of the nation’s financial regulator would increase the rate.
The MPR is the baseline interest rate in an economy while every other interest rate used within such an economy is built on it.
The CBN Governor, Godwin Emefiele in his communique at the end of the Monetary Policy Committee (MPC) meeting in May had explained that the members were concerned about the somewhat aggressive rise in inflation by almost 90 basis points in April 2022.
According to him, “To dampen the expectation of the inflationary pressure, MPC decided on the need to take a shift from its historically cautious approach on the interest rate to a policy rate hike, while still adopting an accommodative approach to development finance initiatives that have supported the growth of the economy and sustained recovery.
“The MPC is of the view that rates on the development finance initiatives of the Bank should remain at five per cent till March 2023.
Consequently, as regards the decision on whether to hold. tighten or loosen, MPC feels that loosening in the face of the rising policy rates in Advance economies may result in a sharp rise in capital outflow and faster dry-up of foreign credit lines.”
A member of the MPC, a Professor of Economics at the University of Benin, Mike Obadan in his personal statement had argued that “A further tightening of monetary policy will not tame inflation. Rather, it will lead to an increase in lending rates of the commercial banks, limit access to credit, and hurt investment in the real sectors of the economy.
“Indeed, a further tightening policy will be antithetical to the CBN’s goal of increasing access of investors to cheap credit in order to aid economic recovery, spur growth, increase employment and reduce poverty.
“On the other hand, easing monetary policy in the present circumstances could increase untargeted money supply growth and exacerbate inflation. The situation of low growth, high unemployment and poverty incidence and double-digit inflation, no doubt, entails difficult policy choices.”
Meanwhile, analysts have attributed the increase in maximum lending rate to inflationary pressure, stressing that gap between the CBN’s lending rate and the maximum lending is huge.
Speaking with THISDAY, Vice President, Highcap Securities Limited, Mr. David Adnori said, “The gap is almost like double-digit and it indicates a serious rant-seeking within the banking industry. The spread between the maximum lending rate and MPR should not be more than 10 per cent but when you have something more than 100 per cent, it means there is a serious rent-seeking activity in the banking sector that is eroding the nation’s economy of resources.”
On his part, an analyst at PAC Holdings, Mr. Wole Adeyeye said, “A lot of countries like the USA, Ghana among others have increased their policy rate and Nigeria cannot operate in isolation. Banks reacted to the hike in the inflation rate and increased the maximum lending rate to 27. 79 per cent in April 2022.”
Similarly, the President of, the Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogubunka attributed the increase in maximum lending rate to uncertainty surrounding and inflation rate in the business environment amid political tension in the country.
Ogubunka, who was the former Registrar/Chief Executive, Chartered Institute of Bankers of Nigeria (CIBN) expressed that Nigeria’s economy in 2022 has not witnessed major improvement to warrant a hike in banking lending rate to the real sector.
Ogubunka explained further that banks opted to increase the rate of saving deposits to attract savings since the funds are not available.
Meanwhile, the data by CBN indicated that interest on savings deposits closed April 2022 at 1.28 per cent from 1.25 per cent, representing an increase of 2.4 per cent Year-till-Date (YtD) performance.
The data revealed that one-month deposit dropped to 2.96 per cent in April from 3.79 per cent in January, while three-month deposit closed in April 2022 at 4.44 per cent from five per cent in January 2022.
Ogubunka questioned, “How many bank customers are still saving money in the bank? It is a demand and supply-related issue. If customers do not give to banks, they will not have enough to lend to the real sector.
“Ordinarily, if there is a surplus in the system, the pricing goes down but if you do not have enough and there is demand for it, you increase the rate. I think what is happening now is that so many bank customers are incapacitated that they cannot save due to inflation rate, among others.”
