Banks raise savings rate as deposits drop

Nigerian banks are now increasing their deposit rates to an average of 1.3 percent as demand deposits drop by 1 percent, a month after the Central Bank of Nigeria (CBN) raised its benchmark interest rate.

The CBN had in May 2022 raised its Monetary Policy Rate (MPR) by 150 basis points to 13 percent. Last month, the apex bank increased the rate by 100 basis points to 14 percent.

Between May 24, when the key interest rate was first raised and the end of June, banks demand deposit, a bank account from which money can be withdrawn at any time without prior notice, dropped to N17.67 trillion from N17.85 trillion, data from the CBN showed.

A total of 13 out of 22 deposit money banks have responded to the MPR hike by raising their savings rate to an average of 1.3 percent, data from the CBN indicated.

“It is largely driven by an increase in monetary policy rate by 250 basis points, which compel banks to raise their savings rate,” Johnson Chukwu, managing director/CEO of Cowry Asset Management Limited said.

In a notice to its customers, Access Bank announced that its savings rate has been increased to 1.4 percent from 1.5 percent. “Following the recent changes in MPR, interest rates on savings accounts have been revised. The new rates apply effective immediately,” the bank said.

The applicable rates for each of the deposit money banks as at July 15, 2022 published on the CBN’s website showed that 11 banks offer 1.3 percent on customer deposits, while nine banks offer different rates ranging from 0.75 percent to 4.20 percent.

Those that offered 1.3 percent were Citibank, Ecobank, Fidelity, Globus, Keystone, Polaris, Stanbic IBTC, Sterling, TitanTrust, Wema and Zenith.

Other banks with various interest rates are FCMB 1.15 percent; GTBank, 1.29 percent; Heritage, 4.20 percent; Providus, 0.75 percent; Standard Chartered, 2.20 percent; SunTrust, 4.10 percent; UBA 1.15 percent; Union Bank, 0.88 percent, and Unity Bank, 1.90 percent.

“Competition can drive deposit rates higher but I don’t see it driving the current deposit rates higher under the current situation in Nigeria,” Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said.

According to him, the business environment is tough, leading to compression of margins for all business concerns, and thus banks will maintain lower rates on deposit rates as possible within regulatory approvals.

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“Increase in savings rate will help to encourage deposit, and will increase the amount of funds that is available for lending to the real sector,” he said.

“What banks are doing now is increasing the cost of borrowing. Deposit may follow suit if customers demand a higher rate. For now emphasis is on raising the borrowing rate. Competition will drive an increase in deposit rate.

But now risk assets are being driven by the CBN regulatory position. Because MPR has gone up, banks have to increase their rates, because what CBN increased is the rate of borrowing from the CBN,” a top bank executive told BusinessDay.

Bank credit to the private sector rose to N39.27 trillion in June from N28.68 trillion recorded in May.

According to CBN data, private sector credit extension (PSCE) increased by 20.4 percent year/year to N39.2 billion as at end-June 2022, mirroring the growth rate of the previous month. Although the PSCE growth rate is ahead of nominal GDP growth, it has lagged behind the other money and credit indicators, analysts at FBNQuest said.

In contrast to the steady PSCE growth rate of between the mid-teens to 20 percent y/y growth rate over H1 ’22, the growth trend in credit to government has been steadily upward.

The most recent data for June show that credit extension to the government expanded by 55 percent y/y. It has averaged about 35 percent y/y over the six months leading to June ’22, much faster than the growth of other money and credit aggregates.

Driving the rapid rise in credit extension to government are revenue shortfalls (relative to expenditure) which result in fiscal deficits that have to be funded by debt (domestic and external), a report by FBNQuest said.