Follow Us on Google
•Begin revision of lending rates March 12
By Chinwendu Obienyi
Following the move by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to adjust the Cash Reserve Ratio (CRR) to 45 per cent from 32.5 per cent recently, economic analysts predict that Nigerian banks are likely to experience a shift in revenue sources.
This is even as banks across the country have begun increasing their lending rates.
The MPC last month, raised the Monetary Policy Rate (MPR) by 400 basis points (bps) to 22.75 per cent from 18.75 per cent. However, it retained the liquidity ratio at 30 per cent.
However, in separate reactions, economic analysts, while pointing to the increase in the CRR, noted that the banks will have to hold a larger portion of their deposits with the Central Bank as reserves.
They also noted that banks with higher effective CRR would receive refunds, while those with lower CRR would be debited. Analysts at Afrinvest, estimated that CRR for Tier-1 lenders at an average of 17.3 per cent and added that this could signify debits over the near-term.
“Given that nearly half of deposits will be sterilized, banks would adjust lending rates to maintain net interest margin.
We suspect that banks would have to rely on trading and investment income to support 2024 performance given heightened risky macroeconomic environment for pricey loans.
Overall, the rate hike would markedly impact bank funding, systemic liquidity, and the government’s borrowing costs as well as debt strategy. The CBN will need to closely monitor liquidity levels and fine-tune interventions to ensure orderly market functioning”, they said.
For his part, Chief Economist and Partner at SPM Professional, Paul Alaje, said the decision to increase CRR would mean that businesses that are on banks’ facilities (loans) should brace up for rate adjustment in the short-term.
According to him, this may further push costs up and, in case of transferable burden, these costs may be passed to the consumers.
“If FAAC inflows and spendings do not impact the economy as expected, its combined impact with this adjustment in rates may lead to a financial distress in the system, given the reality of current economic quagmire. We have made our choices. However, economic choices have consequences”, Alaje said.
In the aftermath of the MPC’s decision to increase CRR, Daily Sun learnt that banks have started sending notices to customers that it would increase its lending rates by March 12.
Zenith Bank in a notice sent to its customers, said, “Accordingly, we are constrained to review the interest rate applicable on credit facilities effective March 12, 2024. We crave your understanding as we continue to monitor the market and update you accordingly”.
