CBN reverts lending rates on all intervention loans to 9% September 1

EFFECTIVE from September 1, 2022, lending rates on all Central Bank of Nigeria (CBN) intervention loans would be raised from five per cent to nine per cent.

This is in compliance with a recent circular by the apex bank mandating Nigerian Banks to raise the lending rates.

Intervention loans are long-term loans lent by the CBN to banks (at a subsidised rate of two per cent) for onward lending to various priority sectors in the economy (like agriculture, power, etc.).

Following the outbreak of COVID-19, the CBN mandated banks to reduce the lending rate on these facilities from nine per cent to five per cent.

The subsidised rate was initially introduced for 12 months. However, this was extended by a year further in March 2021 and March 2022.

Given the recent 12-month extension in March, analysts at an African-focused financial and investment advisory company, Hermes Advisory, said they found the sudden reversal by the CBN surprising as the economy remains in a precarious position.

According to them, based on disclosures amongst Nigerian banks, “We think the biggest beneficiaries of the higher lending rates could be Access and Zenith, while the impact on FBNH and UBA will be negligible.”

The analysts found the timing of these two reversals surprising, given the precarious economic conditions and the continued low real interest rates in the economy.

For instance, the 364-day T-bill was issued at a yield of 7.45 per cent during the primary market auction on August 10 vs. an annual inflation of 19.6 per cent in July.

“While we find it surprising, we think these developments in conjunction with two consecutive rate hikes during the past two monetary policy meetings could be yet further evidence that the CBN is gradually normalising the policy environment.

“We think further normalisation of monetary policy resulting in higher lending rates and potential refund of banks’ excess CRR deposits could be a significant positive for banks and a catalyst for re-rating,” the analysts stated in an emailed note.

In a separate circular, the CBN also mandated banks to increase the minimum savings deposit rate from 10 per cent to 30 per cent of the Monetary Policy Rate (currently 14 per cent), effectively increasing it from 1.4 per cent to 4.2 per cent.

The savings rate was reduced from 30 per cent of MPR to 10 per cent in September 2020 in response to declining trends in market interest rates.

According to the aforementioned article, the CBN cites a “return to full normalcy” of economic activity as the key reason for re-adjusting the savings rate back to 30 per cent.

“Based on our banks’ disclosures, the banks most negatively impacted by the higher deposit rates are Zenith, FBNH, and GTCO, while Stanbic IBTC will likely be the least affected,” Hermes Advisory stated.

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