The maximum lending rate for Nigerian banks rose to 29.13% in December 2022 from 28.14% recorded in the previous month and 27.58% in the corresponding period of 2021.
Lending rates increased on the back of the multiple rate hikes by the Central Bank of Nigeria in 2022. Specifically, the CBN raised the benchmark interest rate by a collective 500 basis points to 16.5%, representing its highest rate in 21 years.
According to the money and credit statistics from the Central Bank of Nigeria, the maximum lending rate averaged 28.09% in 2022 compared to 28.06% recorded in the previous year. Meanwhile, the prime lending rate stood at 13.85% from 13.17% recorded in the preceding month.
- The one-month deposit rate increased to 8.15% in December 2022 from 7.38% recorded in November.
- 3-month deposit rate stood at 8.79% in the review period, an increase from 8.45% recorded in the previous month.
- The 6-month and 12-month deposit rates stood at 8.68% and 8.22% respectively in December 2022.
- The savings deposit rate climbed to 4.13% in December, the highest since April 2017.
Credit still on the rise: Despite the interest rate increase, Nigeria’s private sector’s credit rose by N6.61 trillion in 2022 to close the year at N41.8 trillion, the highest on record.
- Compared to the previous year, net loans increased by 23.65% compared to N5.04 trillion recorded in 2021, and a 47.7% increase from 2020.
- In the same vein, credit to the government increased significantly, with N11.33 trillion in new credit being acquired in the period under review, representing a 92% surge from 2021’s loan figure
- The CBN maintained an aggressive hawkish stance in the second half of 2022 to curb inflation, and mop-up excess liquidity by discouraging loans in the economy. However, businesses in need of cash have acquired more loans despite the high-interest rate regime.
- By implication, this could affect the ability of businesses to repay the loans. An alternative will be to pass the cost to the consumers, which could further exacerbate the inflationary pressure in the country.
Banks set to earn big: Banks and lenders stand to gain from the high-interest rate environment adopted by the CBN.
- Considering that a large chunk of the revenue generated by commercial banks is from interest income, which is a function of interest rates, banks could be set to earn more from their loans to customers. However, high-interest rate portends the possibility of non-performing loans.
- A cursory view of the financial statements of top publicly quoted banks on the Nigerian Exchange showed that interest income increased by 30% year-on-year in Q3 2022, earning a whopping sum of N1.15 trillion compared to N888.36 billion recorded in the corresponding period of 2021.
- For the nine months, interest income rose by 24.6% to N3.14 trillion from N2.52 trillion earned in the same period of the same year. These numbers seem set to increase further when the banks begin to release their full-year results.
Bottom line: The CBN raised the interest rate in 2022 to discourage more borrowing to reduce liquidity in the economy, which is believed to be contributing to the rising rate of inflation. However, credit still rose in the review year, an indication that credit still found its way into the economy despite high-interest rates.