Bank Customers Lament as Maximum Lending Rate Hits 28.94%

Kayode Tokede 

In addition to multiple economic challenges, banking sector customers have decried rising interest ratres as average maximum lending rate increased to 28.94 per cent in June 2023, making it the highest so far this year.

The Central Bank of Nigeria (CBN), in line with current global practice, has on several occasions raised the Monetary Policy Rate (MPR) to tackle inflation.

The Central Bank of Nigeria in its money market data revealed that average maximum lending rate that opened in January 2023 at 27.63 per cent has increased to 28.94 per cent in June amid 18.5 per cent MPR and 22.97 per cent inflation rate as at June 2023.

The average maximum lending rate was at 27.61 per cent in June 2022 on the backdrop of 13.00 per cent MPR.

Maximum lending rate refers to the rate charged by Deposit Money Banks (DMBs) for lending to customers with low credit rating.

According to THISDAY investigation, average maximum lending rate in the banking sector reached record high June 2023 and over six-month high.

The average maximum lending rate closed December 2022 at 29.13 per cent, making it the highest since January 2020 when its was at 30.77per cent.

The data by apex bank revealed that average prime lending rate dropped to per cent in June 2023 from 14.07 per cent in May 2023.

Average prime lending is the interest rate that DMBs charged on loans and products held by customers with the highest credit rating.

The rate reached 14.07 per cent in May, the highest in 2023 and 13.62 per cent lowest  as of February 2023.   

Finance analyst attributed the decline in average prime lending rate to banks aggressive ways of attracting more lending to high credit rating customers amid struggle economy. 

Responding to hike in maximum lending rate, Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose said, “Businesses need a lot of credit facilities to survive, but in an environment where the lending rate is astronomical high, many enterprises, especially small and medium-scale, might find it extremely difficult to survive as their products will remain uncompetitive and the cost of production and the sale prices to consumers will remain high.”

He added that, “A hike in interest rate is often considered a manufacturers’ nightmare as it stifles productivity and expansion. A hike in interest rate slows down productivity, as manufacturers struggle to keep machinery in operations and pay salaries. Those who look forward to borrowing for expansion and production will have to shelve such ideas in the face of the high cost of accessing funds.”

The Head, Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi, had stated the gradual increase in MPR impacted on average maximum lending rate since 2022.

He noted that the increase, of course, would affect businesses and probably reduced borrowing rate in the banking sector.

He said, “For businesses that have taken loans, they will be paying more interest rate on these loans and it will affect their profitability. Also, any businesses or individuals that wanted to borrow money now will think twice amid hike in interest rate.”

Olubunmi added that, “The hike in MPR by CBN is a contractionary monetary policy. The move is to reduce the number of people that will take new loans and it will reduce the amount of money in circulation which is expected to reduce inflation.”

The Vice president, Highcap Securities Limited, Mr. David Adnori had said the gap between the CBN’s lending rate and the average maximum lending calls for concern in the banking sector.

He added that “The gap between the MPR and average maximum lending rate is almost doubled and it indicates a serious rant-seeking within the industry.”

In addition, the data revealed that interest on Treasury bill (T-bills) increased to 3.87 per cent in June from 2.98 per cent in May 2023.