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Monday, 03 August 2020 05:38

Banks implement new CBN guidelines on debt recovery, jerk up lending rates

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Deposit Money Banks on August 1 commenced implementation of Central Bank of Nigeria’s Global Standing Instruction which allows them to recover outstanding debts of debtors from other banks.

Experts who spoke to our correspondent said the implementation would help to differentiate real wealthy businessmen from debtor businessmen.

A former President, Trade Union Congress, Mr Peter Esele, said the guideline was long overdue but added that it was better late than never.

He said, “The financial system has been abused and it is baffling that one man would be owing six banks in the same country; it can’t happen anywhere else.

“What CBN is doing now is that it is sanitising the industry and we now actually know who are the real businessmen and the real big men.

“Some men are wealthy from running banks down because a lot of the big men are running banks down.”

He said CBN and the banks should start giving credit score.

President, United Labour Congress, Mr Joseph Ajaero, said, “Banks that are lending money to people should make sure that they have adequate collateral.

“Ordinarily, banks cannot on their own go to another bank and take the money kept in another bank; they are independent and should operate independently.”

He said it was because the banks were lending without collateral that they were running into problem.

Meanwhile, customers are paying more on loans and getting less on deposits from commercial banks, a Central Bank of Nigeria (CBN) report has said.

They paid between 15.01 per cent and 30.70 per cent on borrowed funds but the interest paid on their term deposits dropped by 1.46 per cent to 6.27 per cent, CBN’s economic report for the first quarter of the year shows.

The report released at the weekend, indicated that the average prime and maximum lending rates rose by 0.02 per cent point and 0.47 per cent  point, respectively, to 15.01 per cent and 30.70 per cent, in the review period. The percentage were above their levels in the preceding quarter.

The average prime and maximum lending rates stood at 29.98 per cent and 14.99 per cent respectively in the fourth quarter of last year.

The rising lending rates, analysts said, have led to upward pressure on market rates and cost of production for the manufacturing sector.

CBN observed that despite the rise in lending rates, banks were paying less deposit interest to depositors. The average term deposit rate fell by 1.46 percentage points to 6.27 per cent. The spread between the average term deposit and average maximum lending rates widened by 1.93 per cent  points to 24.43 per cent points.

The margin indicated that customers are paying 24.43 per cent higher fee than they are getting from banks.

However, Monetary Policy Rate (MPR), which is the benchmark for interest rate at which CBN lends to the commercial banks, is currently at 12.5 per cent.

Despite the rise in lending rates, CBN Governor, Mr Godwin Emefiele said aggregate domestic credit (net) grew by 5.16 per cent in June 2020 compared with 7.47 per cent in May 2020.

The  total gross credit in Nigeria rose by N3.33 trillion from N15.56 trillion at end-May 2019 to N18.90 trillion at end-June 2020.

These credits were largely recorded in manufacturing, consumer credit, general commerce, and information and communication and agriculture, which are productive sectors of the economy.

CBN said the rise in interest rate reflected liquidity in the system. It explained that the inflation rate of 12.26 per cent for March 2020 resulted in negative real rates for deposits, but positive real rates for the prime and maximum lending rates.

“With the headline inflation at 12.26 per cent in March 2020, all deposit rates remained negative in real terms, while prime and maximum lending rates were positive in real term,” the report said.

Continuing, the report showed that money market rates were generally stable and moved in tandem with the level of liquidity in the first quarter of 2020. Daily interbank call and Open Buy Back (OBB)-discountable securities traded in the Nigerian Inter- Bank financial  transactions- rates ranged from five per cent to 7.24 per cent and 1.77 per cent to 21.02 per cent, respectively.

The average interbank and OBB rates were 10.68 per cent and 12.08 per cent, respectively. Other rates, such as the seven-day and thirty-day Nigerian Inter-bank Offered Rate (NIBOR) traded at 11.74 per cent and 9.81 per cent, respectively.


Punch/The Nation