Following a pike in inflation in the month of April this year, Nigerian banks have increased 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 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 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 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 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
activities in the banking sector that is eroding the nation's economy of
resources."
On
his part, analyst at PAC Holdings, Mr. Wole Adeyeye said, "A lot of
countries like USA, Ghana among others have increased their policy rate and
Nigeria cannot operate in isolation. Banks reacted to the hike in inflation
rate and increased the maximum lending rate to 27. 79 per cent in April
2022."
Similarly,
President, 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 on 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
date 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 April 2022 at 4.44
per cent from five per cent in January 2022.
Ogubunka
questioned that, "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 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."
Source:allafrica.com