Kayode Tokede
Following the increase in the Monetary Policy Rate (MPR) to 22.75 per cent, Deposit Money Banks’ (DMBs) average prime lending rate increased to 15.06 per cent in February 2024, highest since June 2020 at 15.65 per cent, the Central Bank of Nigeria’s (CBN) “Money Market Indicators” data has revealed.
Analysis of the data showed that average prime lending rate stood at 13.82 per cent in January 2024 when the MPR was at 18.75 per cent.
Prime lending is the interest rates banks charge on loans and products held by customers with the highest credit rating.
Consequently, when the prime rate is high, liquidity is low and loans are hard to come by, thus slowing the economy down and impacting on firms/ corporate businesses to growth.
The Monetary Policy Committee (MPC) of the CBN had increased the MPR to 22.75 per cent in February 2024 amid inflationary and exchange rate pressures.
Despite the impact on the nation’s economy, Fitch Ratings recently urged the CBN to maintain tightening its tightening policy in the near term.
“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 said.
Meanwhile, further analysis of the CBN Money Market Indicators showed that average prime lending rate had closed December 2023 at 14.17 per cent from 13.67 per cent January 2023 when MPR increased to 18.75 per cent.
According to THISDAY investigations, the prime lending rate is the highest in 41-month spurred by the CBN effort at tackling inflation rate that reached 31.7per cent in February 2024.
Prime lending had closed 2022 at an average 13.85 per cent from average 11.68 per cent in 2021, 16.57 per cent from January 2006 and returned to an average 13.67 per cent in January 2023.
The rate 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.
Financial analysts expressed 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.
Speaking, the Vice President, Highcap Securities Limited, Mr. David Adnori 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.”
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.
According to him, “Both CBN and the federal government are not serious in coordinating their policies to bring down inflation.
“While the CBN is pursuing a contractionary monetary policy to tackle inflation, the federal government is pursuing a different 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 the government through Ways and Means which is the pushed inflation to the current level.”
On his part, Director/Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf questioned the average 15.06 per cent prime lending rate on creditworthiness of banks’ customers.
He disclosed that the average prime lending in the Nigerian banking sector is at 16-18 per cent, stating that creditworthy firms are lamenting over the rate.
“The prime lending rate in the banking sector is more than 13 per cent as reported by CBN in its money market indicators. Some firms are accessing credit close to 18 per cent prime lending rate. I know of big companies that get credit from banks at a much higher rates,” he expressed.
However, the maximum lending rate dropped to average 26.55 per cent in February 2024 from average 27.07per cent reported by the CBN in January 2024.
For average maximum lending rate, it refers to the rate charged by DMBs for lending to customers with low credit rating.
According to the CBN, the 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 six per cent in April of 1975.
The CBN data also revealed that interest on Nigerian Treasury Bills (NTB) rose to 17.03 per cent in February 2024 from 4.33 per cent in January 2024.
The growth in NTB is seen as a major monetary policy move aimed at fighting the depreciation of the naira and sucking out the excess money supply to combat galloping inflation.
The federal government issues NTB, which are short-term financial obligations, through the CBN to cover budget shortfalls.
