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

Effective September 1, 2022, lending rates on all Central Bank of Nigeria (CBN) intervention loans would increase from 5% to 9%.

This is in line with a recent circular from the apex bank asking Nigerian banks to raise lending rates.

Intervention loans are long-term loans lent by the CBN to banks (at a subsidized rate of 2%) to lend to various priority sectors of the economy (such as agriculture, energy, etc.).

As a result of the COVID-19 outbreak, the CBN has requested banks to reduce the lending rate of these facilities from 9% to 5%.

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

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

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

Analysts found the timing of these two reversals surprising, given the precarious economic conditions and still-low real interest rates in the economy.

For example, the 364-day Treasury bill was issued at a yield of 7.45% at the primary market auction on August 10, compared to annual inflation of 19.6% in July.

“While we find this surprising, we believe that these developments, coupled with two consecutive rate hikes in the past two monetary policy meetings, could be further evidence that the CBN is gradually normalizing the policy environment.

“We believe that a further normalization of monetary policy resulting in higher lending rates and potential repayment of banks’ excess CRR deposits could be an important positive for banks and a catalyst for revaluation,” the statement said. analysts in an emailed note.

In a separate circular, the CBN also mandated banks to raise the minimum savings deposit rate from 10% to 30% of the monetary policy rate (currently 14%), raising it from 1.4% to 4.2 %.

The savings rate was reduced from 30% of the MPR to 10% in September 2020 in response to the downward trends in market interest rates.

According to the aforementioned article, the CBN cites a “full return to normal” in economic activity as the main reason for readjusting the savings rate to 30%.

“Based on statements from our banks, the banks most affected by the deposit rate hike are Zenith, FBNH and GTCO, while Stanbic IBTC is likely to be the least affected,” Hermes Advisory said.

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