At 19.39%, Interbank Call Rate Hits 6-year High on Illiquidity

Kayode Tokede

Nigeria’s interbank call rate at which banks lend and borrow money from each other on a short-term basis, has jumped to its highest level since 2018, numbers released by the Central Bank of Nigeria (CBN) has revealed.

The interbank call money rate is primarily determined by the demand and supply of funds in the interbank market and is used as a benchmark rate for other short-term lending rates.

The CBN in its money market data revealed that Interbank call rate jumped to 19.39 per cent in November 2023, which is the highest since February, 2018 when it was at 26.19 per cent.

Data sighted by THISDAY revealed that the weighted average call rate stood at 19.5per cent as of January 18, 2024, translating into high lending rate by banks to real sector.

The rate opened January 2023 at 10.35 per cent, hits its second highest peak at 15.8per cent in April 2023.  

The interbank call rate had opened at 14 per cent in January 2023 and closed at 12 per cent December 2022.

“There is low naira liquidity in the money market at the moment. And some banks and companies are unable to access cheaper funding as a result,” said David Adnori, Vice President, Highcap Securities Limited.

He expressed that the CBN maintaining MPR at 18.75 per cent also contributed to the hike in interbank call rate, another key factor contributing to macro economic challenges as CBN tackles inflation rate. 

“I believe this will be temporary because of the current high inflation rate in the country will require monetary policy tightening. The rate is primarily determined by the demand and supply of funds in the interbank market and is used as a benchmark rate for other short-term lending rates. It is often an important indicator of the overall liquidity and health of the banking system,” he added.

The CBN also revealed that the average maximum lending rate in the banking sector dropped to 27.61 per cent in November 2023 from 28.97 per cent reported in October 2023.

The average maximum lending rate was at 27.24 per cent in September and the CBN reported 27.59 per cent average maximum lending rate in August 2023

With the rising MPR and inflation rate, banking sector customers are to face another challenge as average maximum lending rate increased to 28.94 per cent in June 2023, making it the second highest in 2023.

The CBN 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 investigations, average maximum lending rate in the banking sector reached record high June 2023.

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

The CBN data revealed that average prime lending rate dropped to 14.05 per cent in November 2023 from 14.39 per cent in October 2023.

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

The rate reached 14.39 per cent in October, 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.”