Nigerian banks recorded a slight increase of 0.24 percentage points in maximum lending rate in July 2022, two months after the Central Bank of Nigeria (CBN) raised the first Monetary Policy Rate (MPR).
Maximum lending rate, which is the average highest amount charged by banks for lending to riskier sectors, rose to 27.61 percent in June and July 2022 from 27.37 percent in May 2022, data from the CBN indicated.
In the same way, prime lending, the interest rate that deposit money banks charge their most creditworthy customers, jumped from 11.96 percent in May 2022 to 12.10 percent in July 2022, representing 0.14 percentage points, the data showed.
Meanwhile, banks have begun to reprise their assets and reviewed their lending rates upwards.
A notice by one of the banks, seen by BusinessDay, stated, “The uncertainty in the domestic and global economies over the last few months remains unabated with increased inflationary foreign exchange volatility. These factors prompted the monetary policy committee to increase the monetary policy rate by another 100 basis points at its last meeting to 14 percent. Please note that the committee has so far increased policy by a total of 350 basis points this year.
“Based on the foregoing, we are constrained to notify you of an increase in the lending rate of the facilities availed to you by the Bank from 17 percent to 21 percent. The new rates shall be effective from September 1st, 2022.
“We empathize with you on the impact that this rate change could have on your cash flow and shall make necessary rate adjustments as market conditions change,” the bank said.
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Some of the sectors that attract banks’ higher lending costs include agriculture, manufacturing, education and health.
The CBN’s weekly publication on lending and deposit rates for the banking industry for August 26, 2022, showed that the maximum interest rate on loans to the education sector ranges from 22 percent to 35 percent, by 20 out of 27 commercial and Merchant banks.
For the health sector, 19 out of 27 commercial banks and Merchant banks offer loans with maximum interest rates ranging from 22.00 percent to 35 percent.
Commercial and Merchant banks numbering 24 out of 27 offer loans as low as 9 percent and as high as 35 percent to the agricultural sector of the economy.
All the 27 commercial and merchant banks offer loans to the manufacturing sector with 15 percent as the lowest and 35 percent as the highest rates.
Muda Yusuf, Centre for the Promotion of Private Enterprise (CPPE), said, “they are commercial banks, you cannot dictate for them. It is whatever they think works for them, they will charge.”
He said the lenders are also in competition with other banks adding that the competitive environment will shape what banks can charge for lending.
“I do not think we have a policy that pegs the lending rate. The only pegged lending rate is around the intervention funds, which are provided by the CBN. For other lending, I do not think there is any prescribed ceiling for those lending. It is the market or the business model of a bank that determines the rate charged for borrowing,” he said.
The CBN, working with commercial banks and participating financial institutions, has focused its intervention funds on critical areas such as the agricultural, manufacturing, education and health sectors.