Maximum Lending Rate In Nigeria To Rise Above 30%

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Maximum Lending Rate In Nigeria To Rise Above 30%

Following the recent increase in monetary policy rates by the central bank’s monetary policy committee, lending rates for business and personal loans are anticipated to rise.

This is based on information from the money market indicators of the central bank, which demonstrates a correlation between interest rate increases whenever monetary policy rates are raised.

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According to the report’s data, Nigeria’s prime lending rate—the average lending rate in the nation—was roughly 12 percent, which is significantly lower than the current MPR of 14 percent. The lending rate provided to big businesses and blue-chip enterprises with ratings close to triple-A is known as the prime lending rate.

Rates May Insrease

But while the Prime Lending rate is currently 12%, the Maximum lending rate is 27.6% more than double the existing prime lending rate, a delta that has existed for years as banks price in the risk of lending to small businesses and individuals.

Things could get worse if the trends we have seen in recent years repeat this time around.
Nigeria’s CBN raised its benchmark monetary policy rate to 14% in its monetary policy committee. meeting held on July 19, 2022.
The last time the monetary policy rate was 14%, the prime lending rate was as high as 17.8% while the maximum lending rate also rose to as high as 30%.
This was in 2017 when the country also faced a similar forex crisis with exchange rate disparity between the black market and official market rate widening frequently amid forex scarcity.

Banks increase interest

Commercial Banks in Nigeria implemented interest rate hikes for loans raising rates by as much as 200 basis points (2%) when the CBN increased MPR from 11.5% to 13%

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The interest rate hike is in response to the recent increase in the central bank’s monetary policy rate (MPR) which was jacked up from 11.5% to 13%, a one-hundred-and-fifty-point basis point increase.
We believe this trend will continue in the coming days and weeks as the CBN moves to curtail inflation.
But while banks are often quick to increase lending rates they hardly increase savings deposit rates.

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What this means

Nigeria’s central bank has implemented a dovish monetary policy rate since the Covid-19 pandemic broke as it pursued a policy of stimulating the economy.

This has meant keeping its monetary policy rates low so that lending rates can be low thus inducing borrowing and stimulating the economy.
However, it had no choice but to jack rates up from 11.5% in September 2020 to as high as 20% in April 2022, in response to surging inflation.
A rate hike is also being triggered by the huge disparity between the black market and the official rate which is also driven by lower interest rates as people will have access to cheap funds that can borrow and buy dollars for currency speculations.
If lending rates rise as expected, companies will incur higher lending rates and could see their profits dip due to these additional charges.
Mortgage rates and rates for other loans such as personal loans and consumer loans could also likely rise.

However, since bonds are a realistic and more affordable borrowing option for big corporations, prime lending rates may grow more slowly while maximum lending rates offered by riskier lenders may need to increase.

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