Following the increase in Monetary Policy Rate (MPR) to 15.5 per cent, interest on deposits with banks increased to 4.08 per cent in September 2022, becoming one of the highest since January 1, 2017, the Central Bank of Nigeria (CBN) money market indicators has revealed.
Interest on savings deposit was at 2.93 per cent in August 2022 when the MPR was at 14 per cent, it went up 4,08 per cent in September, boosting the fortune of savings account holders with deposit money banks (DMBs).
According to the Money Market indicators of the CBN, the interest on saving deposits commenced January 2022 at 1.25 per cent and has witnessed a steady increase amid the increase in MPR.
Analysts believe the increase in saving deposit was meant to encourage banks’ depositors to save more and generate more money amid hike in inflation rate.
Speaking with THISDAY, the Vice president, Highcap Securities Limited, Mr. David Adnori said the move to increase the average interest on savings deposits by CBN was meant to mop-up excess liquidity in the system, another means of tackling inflation.
On his part, the President of the Association of the Capital Market Academics in Nigeria (ACMAN), Professor Uche Uwaleke attributed the drop in maximum lending rate to excess liquidity in the banking sector, stating that the interventions by CBN also forced banks to cut interest rate on loans to customers.
He explained that, “When the money supply is high, it is expected to translate into low-interest rates on lending to Bank customers. The numerous interventions by CBN have forced down interest rates in the banking sector. The CBN has a lot of its intervention at single-digit interest rate; moved from nine per cent to five per cent. When the CBN should have ended that regime of five per cent lending rate, it extended it further.
“The CBN has been extending loan facilities to key sectors of the economy and a lot of interventions are accessing these funds at single digit interest rate. The banks were forced to reduce interest rate in order to remain relevant in their major core business of lending to the real sector.”
He said that the gap between saving and lending rates is massive, stressing that the CBN management have expressed concerns.
The Deputy Governor, Financial System Stability, CBN, Aisha Ahmad in her personal statement at the end of the last Monetary Policy Committee (MPC) meeting stated: “Sustaining banking sector lending to critical sectors of the economy will be paramount as monetary policy tightens to contain inflation.
“Given the positive correlation of market lending rates to the MPR, it is expected that borrowing costs will rise, possibly restricting loan growth.”
The apex banking regulating body had ordered banks to pay savings deposit accounts an interest rate of at least 4.2 per cent from the 1.4 per cent previously received.
The Director of Banking Supervision, CBN, Haruna B. Mustafa, in a circular titled, “Review Of Interest Rate On Savings Deposits,” stated that the hike in savings interest rates, effective from August 1, was made in light of the return to complete normalcy after taking into account the current macroeconomic conditions.
The circular reads, “It will be recalled that as part of the efforts to ameliorate the impact of the COVID-19 pandemic, the CBN reduced the minimum interest rates payable on local currency savings deposits from 30per cent to 10per cent of the MPR. This was aimed at stimulating growth in the larger economy following the economic slowdown occasioned by the Pandemic.”
The apex bank noted that Nigeria has returned to economic normalcy, adding, “following the return to full normalcy and considering the prevailing macroeconomic conditions, it has become necessary to effect an upward adjustment of the interest rate payable on local currency savings deposits.”
“Accordingly, effective August 1, 2022, the negotiable minimum interest rate on local currency savings deposits shall be 30per cent of MPR. This supersedes our letter dated BSD/DIR/GEN/LAB/13/052 on the subject. September 1, 2020, ”the CBN said.
The money market indicators, however, revealed that interest on Treasury bills has also increased to 5.68 per cent, a 3.19basis points increase from 2.49 per cent in January.
The Money Market indicators statistics also revealed that the maximum lending rate dropped too 28.06 per cent in September from 28.3 per cent reported in August, while prime lending rate remained flat at 12.23 per cent for the second consecutive year.
The CBN had mandated banks operating in the country to submit their lending and saving rates for publishing.
The CBN Governor, Mr. Godwin Emefiele had admitted that the hike in MPR would increase cost of borrowing, especially in non-priority sectors of the economy.
Emefiele, however, added that lending to key priority sectors, which had been identified to boost growth and generate employment, would remain at a single-digit interest rate of nine per cent.
He pointed out that the decision to raise interest rate was the last resort and a difficult one for the MPC, which had been crafting policies to stimulate economic growth as well as achieve financial stability.