Amidst MPR Hike, Maximum Lending Rate in Banking Sector Rise to 27.59%

Kayode Tokede

The Central Bank of Nigeria (CBN) has disclosed that maximum lending rate by Deposit Money Banks (DMBs) increased from 27.38 per cent in July 2023 to 27.59 per cent in August 2023 amid hike in Monetary Policy Rate to 18.75 per cent. 

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

In a bid to tackle inflation rate currently at   25.80 per cent, the CBN has so far in 2023 increased MPR four times.

The money market indicators of the apex banking regulating body also revealed that the average prime-lending rate in the banking sector dropped to 13.99 per cent in August 2023 from per cent in July 2023.

The indicator revealed that January 2020 was the last time average prime lending rate was above 14.07 per cent when it was 14.97 per cent.

Prime lending is the interest rates that 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. According to CBN, prime lending rate was at 13.98 per cent in June 2023.

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.

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

Analysts said that the gap between the CBN’s lending rate and the prime lending calls for concern, stressing that the spread between the rates should not be more than 10 per cent.

The President, Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogubunka had attributed the increase in average maximum lending rate to economic uncertainty, inflation rate and political tension in Nigeria.

According to Ogubunka, Nigeria’s economy in 2023 has not witnessed major improvement to warrant a hike in banking lending rate to the real sector, stressing that the hike in prime lending is expected to impact increase cost of doing business in the country.

On his part, the 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, 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, “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.”

In addressing these challenges, he suggested that development banks must be encouraged to lend at a single digit with stringent tracking adding that CBN’s policy on tackling inflation rate not working.

According to him, “Both CBN and FG are not serious in coordinating their policies to bring down inflation. While the CBN is pursuing a contractionary monetary policy to tackle inflation, the FG is pursuing an expansional fiscal policy, leading to mismatch in the two policies.

“While CBN is pretending they are undertaking contractionary monetary policy, they are advancing illegal credit to FG through Ways and Means which is the means cause of inflation to the current level.”