No More 25%: Zenith Bank, Access, GTB Adjust Rate for Customers to Get Loan, Others
- Nigerian banks have begun raising interest rates to be in tune with the current realities as directed by the CBN
- This is as the CBN increased the monetary policy rate by 400 basis points at its last MPC meeting
- Analysts said that the customers will feel the effect of the interest rate hike intended to control inflation
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Legit.ng journalist Zainab Iwayemi has over three years of experience covering the Economy, Technology, and Capital Market.
After the Central Bank of Nigeria (CBN) raised the benchmark interest rate, banks repriced their assets, meaning customers would have to pay more for borrowing money.
Source: UGC
As a result, the cost of loans, mortgages, and other credit products has increased.
Recall that the CBN raised the monetary policy rate (MPR) on February 27, 2024, from 18.75% in July 2023 to 22.75%, a 400 basis point rise.
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The CBN's strict liquidity regulations and rising interest rates are two challenges that commercial banks must contend with.
Their operational environment is made more difficult because the challenges occur in a continuously inflationary setting.
Deposit money banks have raised lending rates in response to the interest rate hike following the monetary policy committee meeting.
Starting on March 12, 2024, BusinessDay reported that Zenith Bank increased their loan rate from 25% to 30% while other banks followed suit.
In a notice to its customers, the bank said:
“Accordingly, we are constrained to review the interest rate applicable on your credit facility(ies) effective March 12, 2024, as follows: Overdraft: Old rate:25% New rate: pa 30% annum.
“We crave your understanding as we continue to monitor the Market and update you accordingly. Please note that this is for your information and record.”
What analysts are saying
According to Olumide Sole, a research analyst with Vetiva Capital Management Limited, the increase in MPR affects the bank's favourable and unfavourable profits.
He said the increase will result in banks earning more interest from asset repricing.
"It would also lead to higher interest expenses. But overall, we expect net interest income to increase," Sole said.
Marvellous Adiele, senior associate at Parthian Partners, also said:
“Following the MPR hike last month, it’s expected that banks will reach out to their customers with open lending facility to review the rates of the facility,”
“Also, the savings rate for deposits is also expected to increase. So technically, the ripple effect of the hike will be felt by the customers.”
According to Ayodele Akinwunmi, relationship manager for corporate banking at FSDH Merchant Bank, banks would continue to charge higher loan rates in the present market environment since the CBN is maintaining its tight monetary policy stance, which is intended to stabilise the naira and control inflation.
Fidelis Obaniyi, an economist told Legit.ng that an increase in MPR is a contractionary measure to curb inflationary pressure.
He explained that the move is aimed at tightening monetary stance, but the effectiveness also depends on the fiscal measure as the sidekick.
Speaking on the effect of the move on banking sector, he said,
"Higher interest rates on loans could increase their profits as they tend to generate more income from lending. However, that could also trigger higher default rates because borrowers may also struggle to meet payment requirements, leading to increase in non-performing loans."
"It also encourages commercial banks to improve lending practices, such as reducing exposure to risky borrowers, thereby enhancing financial stability in the banking sector."
On the part of individuals, usually the borrowers and savers or demand and supply sides in the financial sector, he said,
"Businesses or individuals seeking loans tend to face higher cost of borrowing due to increased interest rate. This would reduce their ability to access credit for investment (businesses) or consumption (individuals).
"For the supply side, Savers/investors may benefit from higher interest rates on savings and other commercial banks investments. However, people who invest in variable-rate loans may experience financial strain as a result of higher monthly repayments."
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Source: Legit.ng
