Customers are paying more on loans and getting less on deposits from commercial banks, a Central Bank of Nigeria (CBN) report has said.
They paid between 15.01 percent and 30.70 percent on borrowed funds but the interest paid on their term deposits dropped by 1.46 percent to 6.27 percent, the CBN’s economic report for the first quarter of the year shows.
The report released at the weekend indicated that the average prime and maximum lending rates rose by 0.02 percent point and 0.47 percent point, respectively, to 15.01 percent and 30.70 percent, in the review period. The percentage were above their levels in the preceding quarter.
The average prime and maximum lending rates stood at 29.98 percent and 14.99 percent respectively in the fourth quarter of last year.
The rising lending rates, analysts said, have led to upward pressure on market rates and the cost of production for the manufacturing sector.
The CBN observed that despite the rise in lending rates, banks were paying less deposit interest to depositors. The average term deposit rate fell by 1.46 percentage points to 6.27 percent. The spread between the average term deposit and average maximum lending rates widened by 1.93 percent points to 24.43 percent points.
The margin indicated that customers are paying a 24.43 percent higher fee than they are getting from banks.
However, the Monetary Policy Rate (MPR), which is the benchmark for the interest rate at which the CBN lends to the commercial banks, is currently at 12.5 percent.
Despite the rise in lending rates, CBN Governor, Godwin Emefiele said aggregate domestic credit (net) grew by 5.16 percent in June 2020 compared with 7.47 percent in May 2020.
The total gross credit in Nigeria rose by N3.33 trillion from N15.56 trillion at end-May 2019 to N18.90 trillion at end-June 2020.
These credits were largely recorded in manufacturing, consumer credit, general commerce, and information and communication and agriculture, which are productive sectors of the economy.
The CBN said the rise in interest rate reflected liquidity in the system. It explained that the inflation rate of 12.26 percent for March 2020 resulted in negative real rates for deposits, but positive real rates for the prime and maximum lending rates.
“With the headline inflation at 12.26 percent in March 2020, all deposit rates remained negative in real terms, while prime and maximum lending rates were positive in real terms,” the report said.
Continuing, the report showed that money market rates were generally stable and moved in tandem with the level of liquidity in the first quarter of 2020. Daily interbank call and Open Buy Back (OBB)-discountable securities traded in the Nigerian Inter-Bank financial transactions- rates ranged from five percent to 7.24 percent and 1.77 percent to 21.02 percent, respectively.
The average interbank and OBB rates were 10.68 percent and 12.08 percent, respectively. Other rates, such as the seven-day and thirty-day Nigerian Inter-bank Offered Rate (NIBOR) traded at 11.74 percent and 9.81 percent, respectively.