Maximum Lending Rate Rises as Depositors Earn More
Average highest lending rates charged by Nigerian banks increased in the month of July as depositors see an improvement in rates, Cowry Asset says in its monthly economic digest for July.
According to the report, depositors earned better interest on their deposits as one, three and twelve months deposit rates increased to 3.36%, 6.14% and 6.54% in June. Market data shows that these rates had printed at 2.84%, 4.00% and 4.96% in May 2021.
In the period, analysts report shows that maximum lending rates expanded on average to 29.05% from 28.39%. On the other hand, prime borrowers saw a sustained rise in average lending rate to 11.67% from 11.29% for the third consecutive month.
Also, the report shows that the spread between the two rates widened to 17.38 percentage points in June from 17.10 percentage points in May 2021.
The increased lending rate could however impact private sectors’ investment activities, which could probably temper growth optimism in the second quarter of 2021, analysts told MarketForces Africa.
According to Cowry Asset, Nigeria’s business activity remained in expansion territory as the IHS Markit-Stanbic IBTC headline Purchasing Manager Index (PMI) rose to 54.4 points in July from 53.6 points in June.
The firm said expansion in new orders and output was driven by higher demand requiring the purchase of more inventory and higher staffing to reduce greater workload, analysts added.
Economic growth has remained tepid after Nigeria’s shed about 2% of its gross domestic product in 2020 amidst pandemic-induced lockdowns.
In the first quarter, Nigeria’s GDP increased 0.51%, underperformed most economic projections at the time. In the period, real output increased, albeit, marginal to N16.83 trillion or US$112.24 billion.
The growth was driven by a 0.79% growth in the non-oil sector. However, the oil and gas sector fell by 2.21% to N1.56 trillion or US10.40 billion as average daily oil production fell 16.91% to 1.72 million barrels per day in the quarter.
After the Central Bank of Nigeria Monetary Policy Committee cut benchmark interest by 100 basis points to 11.5% with an asymmetric corridor of +200/500, Nigerian banks reduced their interest on savings by 0.5 percentage points.
The average rate per annum across the banking space printed less than 4% in 2020 as monetary policy authority maintained a pro-growth stance in an effort to drive credit to the real sector of the economy.
Reacting to the adjustments seen around lending and savings rates, analysts told MarketForces Africa at a forum that inflation worries would keep driving the two ways rates negotiations – from the banks and depositors.
An increase in lending rate could stifle overall growth, though this would boost banking sector performance with a possible effect on yields in the fixed income market.
That alone could also drive hot money into the economy while manufacturing concerns suffer increase production cost which could as well lead to price increment.
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Maximum Lending Rate Rises as Depositors Earn More
