Amid increase Monetary Policy Rate (MPR) to 16.5 per cent, prime lending rate in the banking sector now stands 13.17per cent, the highest in 23-month, according to the Central Bank of Nigeria (CBN) money market indicators.
Prime lending is the interest rate that banks charge their most creditworthy customers, generally large corporations.
The apex bank in November 2022 increased MPR to 16.5 per cent in response to global inflationary pressures, which had continued to hurt economies around the world.
The CBN in its money market indicators revealed that prime lending reached the highest figure at 14.97per cent January 2020.
With the prime lending rate reaching its highest level in 2022, the data by CBN revealed that maximum lending rate at 28.14 per cent reached second highest level in 2022, as banks move to attract more lending to customers.
Maximum lending rate increased to 28.14 per cent in November 2022 from 28.06per cent reported by CBN in October 2022, while interest on saving deposit closed November 2022 at 3.93per cent, highest so far in the year under review.
Also, interest rate on treasury bills (T-bills) increased to 6.5 per cent in November, the highest in 2022.
Responding, the Vice president, Highcap Securities Limited, Mr. David Adnori lamented over the increase in prime lending rate to MPR, stressing that gap between the CBN’s lending rate and the prime lending calls for concern in the banking industry.
According to “The gap is almost like double-digit and it indicates a serious rant-seeking within the banking industry. The spread between the prime lending rate and MPR should not be more than 10 per cent but when you have something more than 100 per cent, it means there is a serious rent-seeking activity in the banking sector that is eroding the nation’s economy of resources.”
On his part, the President, Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogubunka stated that the increase in prime lending rate to uncertainty surrounding and inflation rate in the business environment amid political tension.
Ogubunka said Nigeria’s economy in 2022 has not witnessed major improvement to warrant a hike in banking lending rate to the real sector, stressing that the hike in prime lending is expected to impact increase cost of doing business in the country.
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.
He said the CBN had adopted a contractionary monetary policy stance in view of the aggressive rise in inflation in recent times, which had led to high food and commodity prices in the country.
Emefiele noted that CBN’s action was aimed at curbing inflation, on the one hand, and supporting growth of the economy, on the other. He said the MPC was in a dilemma in arriving at a decision to raise the lending rate. As a result, the apex bank governor explained, a drastic measure such as raising the benchmark lending rate was required to reduce monetary expansion in order to tame inflation.
He assured that though inflation was expected to maintain an aggressive acceleration in the coming months, the central bank would not hesitate to return to its accommodative stance whenever it saw a reduction in the headline index.
Emefiele said, “The concerns about the global rise in inflation and price levels; you all would have seen that the price of crude quite unexpectedly has been above $100 per barrel. In fact, Nigeria’s Bonny light yesterday, when we started the meeting, was about $116 per barrel.
“What this means is that the standard pricing indicator; yes, whereas crude prices have gone up per barrel, at the same time the cost of refining and ultimate pump price at the station would naturally have gone up.”
He added, “For us in Nigeria, you would have observed that in the last two and a half years, what we have been doing is that we want to pursue a policy of price stability that is conducive to growth and that’s why somehow we have used our development finance intervention facilities, we have actually yielded positive results and helped to drive growth in our economy.
“We’ve used that to drive growth while at the same time we try as much as possible to maintain a hold position while looking at the optimum level of liquidity in the industry to be able to moderate inflation at a level that does not hurt the growth and economy of our country.
“But with what we have seen globally either in the areas of the supply chain, increases in prices of petroleum products, and the rest of them, we have seen aggressive growth in inflation in Nigeria between March and April of 2022.
“And the forecast from our statisticians, including the NBS and CBN as well as our colleagues in research and monetary policy, is that unless something drastic or significant actions are taken, it will be difficult for us to really rein in inflation if we don’t do something immediately.
“This decision has been taken because we felt that there may continue in the next couple of months to be an aggressive acceleration in inflation and we think there is a need to take some drastic actions to reverse it.
“If we are able to see a reversal, perhaps, we can say we are returning to what we can call the normal period, when we are looking at using CRR to moderate inflation and at the same time using our development finance to really push for growth.”