Following the increase in Monetary Policy Rate (MPR) b y the Central Bank of Nigeria (CBN) and others in Sub-Saharan Africa (SSA), banks have continued to reap bountifully with Access Holdings Plc and 10 others generating an estimated N6.5trillion from customers' loans and advances in nine months of 2024.
The amount generated in nine months of 2024 is about 118 per cent increase from N2.99 trillion reported in the corresponding period of 2023.
Central banks in SSA have consistently adjusted MPR to manage inflation, stabilise currencies, and address economic challenges.
For instance, the CBN has increased its MPR from 18.75 per cent as of December 2023 to 27.25 September 2024 (currently at 27.50 per cent).
With the hike in MPR, banks operating in Nigeria, other SSA countries have seen interest on customers loans & advances increased significantly.
For example, Access Holdings in nine months of 2024 generated N1.13 trillion income from customers loans & advances, about 146 per cent increase over N458.41billion reported in nine months of 2023.
Similarly, Zenith Bank Plc reported N1.07 trillion income from customers loans & advances in nine months of 2024, about 163 per cent increase over N408.66billion reported in nine months of 2023, while Ecobank declared N1.01 trillion income from customers loans & advances in nine months of 2024, representing an increase of 139.76 per cent from N441.84billion reported in nine months of 2023.
Also, the 11 banks declared increase in interest income, lending to other banks, among others in the period under review.
Analysis of their audited financial results showed that the banks reported N12.68 trillion interest income in nine months of 2024, about 145 per cent increase from N5.18trillion reported in nine months of 2023.
Lending to real sector has been on the increase in the period as the average maximum lending rate in the banking sector increased to 30.21 per cent in September 2024.
Maximum rate is the upper limit of interest rates for loans provided to the sector, which might apply to higher-risk scenarios or different loan structures.
The "Money market indicators" of the CBN revealed a correlation between hike in CBN's MPR and increase in average maximum lending rate.
As the average maximum lending rate closed September 2024 at 30.21 per cent from 29.93 per cent in August 2024, MPR moved from 26.75 per cent in August 2024 to 27.25 per cent in September 2024.
Average maximum lending rate in Nigeria averaged 14.07 per cent from 1961 until 2024, reaching an all-time high of 37.80 per cent in September of 1993 and a record low of 6.00 per cent in April of 1975.
Analysts had predicted that the maximum lending rate would increase further as the Monetary Policy Committee (MPC) of the CBN hike rate to 26.75per cent at the last meeting in June 2024.
The average maximum lending rate had closed 2023 at 26.62 per cent on the backdrop of CBN hike in MPR to 18.75 per cent.
The CBN' MPC decision to hike the MPR to 27.25 per cent likely reflects an attempt to control inflation and stabilise the naira.
The CBN, under Mr. Yemi Cardoso, has increased the MPR for the fifth time to combat inflation and foster economic stability.
Such a strategic manoeuvre aims to curb the inflation surge, which recorded a year-on-year peak of 32.7per cent in September 2024, and to mitigate the depreciative pressures on the naira.
However, the steep increase in the policy rate has sparked concerns regarding the potential impact on the cost of credit for businesses already facing economic hardships.
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.
THISDAY checks revealed that average maximum lending rate opened 2024 at 27.07 per cent and it has increased by 314 basis points to 30.21 per cent reported by the CBN in the month under review.
Fitch Ratings had projected that the CBN would maintain stand on continues tightening policy in the near term, which seems necessary to 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.
Speaking with THISDAY, Investment Banker & Stockbroker, Mr. Tajudeen Olayinka said that 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.
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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 to 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.
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."
