Commercial Banks in Nigeria have implemented interest rate hikes for loans raising rates by as much as 200 basis points (2%).
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.
The MPR is a benchmark rate used by the apex bank to lend money to commercial banks in Nigeria. Banks often add a premium to the MPR when setting interest rates for their borrowers.
What banks are doing
In a letter to borrowers seen by Nairametrics, a commercial bank (name withheld) informed the customer that they will be “reviewing the interest rate” upwards due to “prevailing market conditions” in the market.
- In another letter from another bank, they informed the customer that due to “market conditions your interest rate has been adjusted” stating the new rate that the customer is expected to pay.
- The interest rate increases are also with immediate effect giving customers no choice but to plan ahead or look for alternatives to fund the interest rate hikes.
- While banks are quick to adjust interest rates for borrowing upwards, savings deposit rates remain the same according to our survey.
- Past interest rate hikes from banks have often gone without any form of control leaving it to market forces to determine. The Central Bank often provides guidance on rate bands, with maximum and prime lending rates often the guide.
- The latest data from the CBN indicates the prime lending rate was 11.8% in April while the maximum lending rate is 28.79%.
- It is expected that the rates will increase by at least 2%.
The Monetary Policy Committee of the Central Bank of Nigeria voted unanimously last month to raise the benchmark interest rate to 13% after two years of expansionary monetary policy. Whilst, the CBN’s hawkish move is targeted at curbing the rising rate of inflation in the country, it is likely to slow down economic activity in the country especially if it slows down loan creation.
