Despite the Monetary Policy Rate (MPR) remaining flat at 26.75 per cent between July and August 2024 (currently 27.25 per cent), the Nigeria's banking sector average prime lending rate increased to 17.01 per cent in August 2024, the highest since April 2019.
According to data leased by the Central Bank of Nigeria (CBN), average prime lending rate was at 18.23 per cent April 2019 when MPR was at 13.50 per cent.
The prime-lending rate indicates the possible rate offered to the most credit worthy customers by Nigerian banks.
Prime lending stood at 15.89 per cent in July 2024 from 15.85 per cent for June 2024; it reached an all-time high of 19.66 per cent in November 2009 and a record low of 11.130 per cent in March 2021.
The CBN, under Mr. Yemi Cardoso, has increased the MPR for the fifth time to combat inflation and foster economic stability.
The first hike increased the rate from 18.75 per cent to 22.75 per cent, the second to 24.75 per cent, the third to 26.25 per cent, the fourth to 26.75 per cent and recently 27.25 per cent in the September 2024 Monetary Policy Committee (MPC) meeting.
These increases, totalling 850 basis points since Cardoso's appointment, have been driven by efforts to tackle the country's persistent inflation challenges, which include high core and food inflation.
An investigation by THISDAY showed that Wema Bank Plc, followed by Signature Bank, Keystone Bank Limited, Unity Bank Plc, among others have the highest prime-lending rate above 30 per cent in the manufacturing sector as of August 30, 2024.
A report by CBN also revealed that FBN Quest Merchant, FSDH Merchant Bank, Polaris Bank, Stanbic IBTC have prime lending rate below 10 per cent as of the period under review.
Specifically, the prime lending rate of Wema Bank closed August 2024 at 32.50 per cent, Signature Bank, 32 per cent; Keystone Bank Ltd, 30.50per cent and Unity Bank, 30per cent.
As of August 30, 2024, FBN Quest Bank reported an average prime-lending rate of seven per cent in the manufacturing sector as FSDH Merchant Bank closed the period under review at nine per cent.
The report also showed that the average maximum lending rate increased to 29.93 per cent in August 2024 as against 28.89 per cent in July 2024.
The money market data by CBN showed that the average maximum lending rate hit the highest peak since this year.
Maximum rate suggests the upper limit of interest rates for loans provided to the sector, which might apply to higher-risk scenarios or different loan structures.
A report by Fitch Ratings had projected that the CBN maintained a stand on continues tightening policy in the near term, which seems necessary to more fully control inflation as rapid credit and money-supply growth suggests a still-loose monetary context.
"Such a tightening will still face implementation challenges, partly due to the potential for countervailing political pressure. However, without further sizeable monetary tightening, it may be difficult to achieve macroeconomic stability - real interest rates remain negative, deterring inward portfolio investment," Fitch Ratings added.
Analysts have attributed the increase in lending to the hike in MPR and severe macro economic challenges.
Investment Banker & Stockbroker, Mr. Tajudeen Olayinka said banks review their lending rates on regular basis, subject to their respective cost of funds and the direction of MPR, not necessarily using MPR as a distinct value.
According to him, the MPR signals to them the direction of interest rate in the market and the price they will pay if they have to borrow from or lend to CBN.
"Therefore, their deposit mix, which includes idle customers' deposits, determines what their weighted average cost of funds would be. They then factor in the signal from MPR, to enable them arrive at their various prime lending rates which are usually reserved for their prime customers.
"But with all these recent circulars from CBN concerning idle deposits and foreign exchange windfalls, the market should prepare for a prolonged high interest rate regime. CBN doesn't seem to have a good understanding of its recent destructive policies," he added.
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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, Vice president, Highcap Securities Limited, Mr. David Adnori 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 is not working.
