Currency Outside Banks Now N2.18trn, 86.22% of CIC as Prime Lending Rate Hits 14.07%

Nume Ekeghe

Money and Credit Data released by the Central Bank of Nigeria (CBN) for May, 2023 has revealed that currency outside the banks has risen for the fifth consecutive month to N2.18 trillion, which is about 86.22 per cent of the total currency in circulation (CIC), put at N2.53 trillion.

Analysis of the data showed that currency in circulation rose by 5.8 per cent from N2.38 trillion in April to N2.53 trillion in May.

THISDAY checks disclosed that the rise is slowly sprinting to the prehistoric peek of N2.73 trillion of currency outside banks as of September 2022, which was 85 per cent of N3.2 trillion of CIC.

A 10-month breakdown that prompted the naira redesign policy showed a N3.23 trillion currency in circulation in September 2022, N3.29 trillion in October 2022,  November 2022, N3.16trillion and December 2022, N3.01 trillion.

Further analysis showed that in January 2023, currency in circulation was N3.29trillion, February 2023, N982billion, March 2023, N1.68trillion, April 2023, N2,38trillion, and N2.53 trillion in May.

Also, the 10-month breakdown of currency outside the banks revealed that the month of September was N2.72 trillion, October N2.83 trillion, November N2.65 trillion and December N2.57; while January recorded its lowest at N792 billion, February N843 billion, March N1.45 trillion, April N2.07 trillion and N2.18 trillion for the month of May.

According to experts, the significant increase is primarily attributed to the spill over effect of the cash crunch. They suggested that average Nigerians are hoarding the new notes and refraining from depositing them in banks due to a lack of trust in electronic banking systems.

Head of Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi, explained that the surge in currency held outside the banking system is a predictable outcome of the implementation of the naira redesign policy.

He said: “The memories of the difficulties encountered during the initial phase of the policy are still fresh in the minds of average Nigerians. As the policy was temporarily suspended until December, many individuals are proactively preparing for the anticipated developments during that period. Consequently, a significant number of people have chosen to hoard the new notes in anticipation of the upcoming changes.”

 Meanwhile, it was learnt that the average prime-lending rate in the banking sector increased to 14.07 per cent in May 2023, a record high, amid hike in Monetary Policy Rate (MPR).

Prime lending is the interest rates that Deposit Money Banks (DMBs) charge on loans and products held by customers with the highest credit rating.

The average prime-lending rate in January 2023 was at 13.67 per cent and increased to 13.62 per cent in February when MPR was at 17.5 per cent. It increased to 13.97 per cent in March amid 18 per cent MPR as the CBN tackled rising inflation rate.

The lending rate further increased to 14.05 per cent in April and subsequently closed 14.07 per cent in May 2023. 

The prime-lending rate had closed 2022 at 13.85 per cent from 11.68 per cent in January 2022. 

Prime lending closed 2022 at an average 13.85 per cent from average 11.68 per cent in 2021 with averaging 16.57 per cent from January 2006 to average 13.67 per cent in January 2023.

It reached an all-time high of an average 19.66 per cent in November 2009 and a record low of average 11.13 per cent in March 2021.

The money market indicators also disclosed that the maximum lending rate dropped from 28.59 per cent in April to 28.31 per cent in May 2023, while interest on savings deposits closed May 2023 at an average 5.13 per cent, the highest in over 17 years.

The maximum lending rate refers to the rate charged by banks for lending to customers with low credit rating.

Consequently, the interest rate on treasury bills (T-Bills) dropped to 2.98 per cent in May 2023 from 5.73 per cent reported by CBN in April 2023.