Spike in lending rates stifle real sector growth
Offering lending rates above 30% could put pressure on corporate financing, but banks are comfortably charging above that except for bellwethers that have strong financial muscles and negotiation advantage.
A review of data provided by the Central Bank of Nigeria (CBN) on lending rates from all deposits money banks has revealed.
The recent data shows a maximum lending rate of 30.56% in February, coming from 30.48% in January with analysts forecasting to see a slice in the rates on the back of a 0.5% decrease in pricing rate.
The slowdown in the industrial economic performance that underscores the business environment over a long period is attributed to a more than average spike in the lending rates from banks, some experts said.
For 14 months straight, the maximum lending rate in the banking sector has stayed at 30% and above since 2016 with a short term dip in early 2017 before it further picked up. This has translated to high finance cost for companies that need to leverage to build capacity and support strategic and operational expenditure.
Banks are trading available funds at about 30% to regular customers while their prime rate to selective customers with solid credit standing is at around 18% on average.
MarketForces Africa recent research has unfolded that some banks offered as much as 42.5% maximum lending rate while government accessed credits with as low as 1%, data from CBN lending rate data revealed.
The monetary policy committee of the central bank of Nigeria allowed a 50 basis point drop in the benchmark interest rate in March. The pricing rate was held for 16 consecutive meeting, since June 2016.
Some pundits said that a 50 basis point reduction in the MPR would have little effect on the borrowing rate, albeit a right step for the first time in 32 months.
Many industrial operators, small and medium scale enterprises are grappling with high operating costs, which is further compounding an already overburden sector.
For the month of February, Access Bank Plc prime lending rate to Agriculture, Forestry and Fishery segment was 16%, and the maximum lending rate closed the month at 29.50%. In the same sector, Heritage facility was priced at 27% as prime and maximum rate available to customers was 30%.
FCMB Plc prime lending rate to its selective customers was the lowest at 4.2% with the maximum rate reaching the end of the interest rate line at 30%. For the same sector, Fidelity Bank Plc did 6% as prime with the maximum soaring to as much as 36%. Union Bank Plc had the most expensive maximum lending rate at 45.5% and a prime rate at 23.5%.
Operators in the manufacturing sector accessed prime funds at a 5.79% prime rate from FCMB Plc, and the bank cap maximum lending rate at 30%.
Manufacturers accessed credit from Union Bank Plc. at 42.50% cap rate compare with its prime rate at 9.50% to selective customers. This happened to be the highest in the banking sector, and similar pattern underscore how customers accessed loans from Union Bank.
Base on available data, it has been observed that the manufacturing sector contribution to GDP is worrisome low at about 5% on the back of myriad of issues from high operating cost to multiple taxation and lack of comparative advantages of sort.
On the other hands, merchant bank operators lending cap to manufacturers was relatively low compare with deposit money banks.
Rand Merchant Bank Nigeria Limited, Coronation Merchant Bank, FSDH and Nova Merchant Bank maximum lending rate was at 20% on average but Rand offered the best rate at 19.10%.
Analysts that spoke with MarketForces said that; “The smaller the bank, the lesser the funds available to disburse to creating money due to applied cash reserve ratio.
The ratio curtail the bank from creating risk assets beyond their maximum capacity. That is, the advantage that big balance sheet banks are having. For merchant banks, they have some flexibility in building funds that can be channeled to customers”
It was gathered that not so many customers have opportunity to raise credit at prime rate. More than often, industry’s the blue chips and high ticket deals has the rare advantage.
MarketForces finding shows that big balance sheet companies that have access to credit at prime rate are not often pressured by finance costs. They have grown up enough to accommodate interest expenses that would have a lesser effect on profitability due to the size of their revenues. By researching the pattern,
Analysts concluded that prime rates are offered by big companies for short tenor and bankers are smart, they would normally compare opportunity cost – should we invest the amount in the money market or lend for the same tenor.
Access Bank interest rate to manufacturing concerns in the period was, prime 14% as against 29.5% as maximum rate, Citi Bank did 16% prime, 22% maximum rate and Coronation bank did 16% and 21%.
Ecobank Plc offered interest rate at 14% prime and cap it at 24% maximum, First Bank of Nigeria, 20% prime and 28% maximum compare with FBN Merchant bank 15% prime and 20% maximum.
FCMB Plc loans was reasonably priced at 5.79% prime and at 30% cap for the manufacturers. Fidelity bank prime rate was 19% and 36% maximum for others, FSDH 14.95% to 20% while Guaranty Trust Bank did 12% prime and 24% maximum rates.
Heritage bank 27% for prime, 31% for maximum, Keystone bank 19%, 36% as maximum and Nova merchant bank 17% prime as against 20% maximum. Providus bank did 22% and 25%.
Rand did 17.10% and 19.10%, Standard Chartered 20%, 25%, Polaris lend at 28% and 34% and Stanbic IBTC did 17% and cap the rate at 30%. Sterling bank prime rate was 21% with the maximum capped at 30%, UBA 19% and 29% maximum rate.
Union bank 9.5% and 42.50% maximum, Unity Bank Plc offered prime at 24% and capped rate at 32%. Unlike other banks, Wema bank offered both prime and maximum rate at 29% and Zenith bank prime rate closed at 17.5% and was capped at 27.5%.
Meanwhile, while companies and other productive segments are being loaded with a high margin above the apex bank rate, banks are giving credence to the government in terms of lending. In the month of February, FCMB prime lending rate to the government was 1% while the bank capped the maximum at 9%.
Heritage bank however closed gap between prime and a maximum lending rate as the bank offered the government a blanket rate of 9%. Among banks with interest in government deals was Polaris Bank limited with a prime rate at 9% and 31% maximum lending rate to the government.
Merchant bank operators exhibited no interest in government lending as FSDH, Coronation merchant bank, Nova merchant cut no deal except for FBN merchant that offered 18% for both prime and maximum lending rate.
Spike in lending rates stifle real sector growth