Gap between lending, deposit rates worry MPC members

The spread between  maximum and consolidated deposit rates which stood at 26.23 per cent in February 2019, has become a source of worry to some members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN).

According to the members, this spread suggests exploitation and remains unacceptable in view of the adverse implications for savings, investment and welfare.

The MPC met on the 25th and 26th March, 2019; against the backdrop of developments in the global and domestic economic environments in the first quarter of 2019.

In the personal statements  of  eleven (11) members of the Committee present, released by the CBN, they called for regulatory actions to address the situation.

Chai, Yoruba don suffer for Airtel hand

Isa-Dutse, Mahmoud regretted that the financial market conditions indicate that maximum lending rate remains high at 30.56per cent in February 2019, “whereas the yawning gap between maximum lending rate and consolidated deposit rate is as wide as ever at 26.23 per cent.

This picture he said, is not growth-friendly, stressing thst reviewing the policy rate in a downward direction seems to be the right way to go in the absence of direct controls.

Obadiah, Mike Idiah on his part said a good number of the operators, especially the deposit money banks, appear to be doing well as reflected by profitability indicators, rates of return, among others.

But,  inefficiency and monopoly practices according to him, seem to abound.

His words: “Unacceptable interest rate spread persists. The maximum lending rate stood at 30.56 percent in February, while the Prime lending Rate stood at 16.08 percent in the same month.

“ On the other hand, consolidated demand, savings and term deposit rates declined by 0.02 percentage points to 4.33 percent in February 2019 from 4.35 percent in January 2019.”

To Ahmad, Aishah, strengthening financial soundness indicators provides the perfect springboard for private sector credit growth.

The financial system stability profile continues to improve as reflected in key industry prudential ratios, she observed. Industry capital adequacy is healthy at 15.14 per cent (February 2019), while liquidity and profitability indicators also stayed robust.

According to Ahmad, it is good that  financial institutions are increasingly leveraging technology to enhance retail credit origination processes and build scale. However, lending rates remain higher than desirable.

She therefore urges the CBN  to continue its interventions in critical sectors to finance capacity expansion and its de-risking initiatives to make real sector lending safer and more attractive.

Also, Balami, Dahiru Hassan believes that credit growth remains dismal, as total credit remained around the N15 billion corridor having grown from N15.63 billion in March 2018 to a high of N15.99 billion in October 2018, but contracted to N15.69 billion in February 2019.

He further observed that on annual basis, aggregate credit equally recorded a decline of 2.53per cent from February 2018 to February 2019, adding that the trend into 2019 was attributed to disposals and write-offs.