The spread between the average term deposit and maximum lending rates in the banking sector widened by 0.87 to 23.2 percentage points in October 2021, the Central Bank of Nigeria (CBN) said.
The CBN explained that movements in interest rates reflected the relatively tight liquidity condition in the market, as short-term rates trended above their levels in the preceding month.
A term deposit is referred to as a savings product in which a customer deposits an amount of money with a commercial bank for a specific period of time. In term deposits, the money is kept for a fixed maturity and the depositor is not allowed to withdraw it till the end of the maturity period.
The maximum lending rate is the rate at which deposit money banks extend credit to perceived risky customers.
According to the CBN’s monthly economic report, the average term-deposit rate declined by 0.87 percentage points to 3.9 per cent in 10 months.
On the other hand, the average prime lending rate increased by 0.24 percentage points to 11.6 per cent, while the average maximum lending rate remained the same at 27.10 percent, in October 2021.
Interest rate development at the money market shows that the daily inter-bank call and Open-Buy-Back (OBB) rates averaged 11.00 per cent (±4.00) and 12.69 per cent (±6.55), respectively.
Other rates such as the 7-, 30- and 90-day Nigerian Inter-Bank Offered Rate (NIBOR) traded at averages of 13.89 per cent, 11.31 per cent and 12.45 per cent, respectively, compared with 12.38 per cent, 10.92 per cent and 11.85 per cent in the preceding month.
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The report revealed that Standing Lending Facility (SLF) during the month was N503.69 billion (comprising N337.78 billion direct SLF and N165.92 billion Intra-day Lending Facility (ILF) converted to overnight SLF).
Daily requests ranged from N0.10 billion to N108.20 billion and averaged N13.58 billion in the 15 transaction days, while total interest earned was N0.28 billion. However, the total request for the SLF in October 2021 represents a 31.7 per cent decline, compared with N737.72 billion in the preceding month.
On the other hand, the total Standing Deposit Facility (SDF) during the review period was N112.56 billion, with a daily average of N7.03 billion in 16 transaction days, while the cost incurred on SDF stood at N0.02 billion. The SDF for the month under review was 43.8 per cent lower than the value in the previous month (N200.35 billion).
The CBN said the financial system remained sound and stable, as soundness indicators stayed within regulatory thresholds, despite fears of the resurgence of a new variant of the COVID-19 virus in some countries.
Consequently, the Capital Adequacy Ratio (CAR) rose by 1.5 percentage points to 15.2 per cent at the end of October 2021, relative to the 15.0 per cent level at end-September 2021, and exceeded the regulatory benchmark of 10.0 per cent by 5.2 percentage points. The development reflected an increase in total qualifying capital and lowered risk-weighted assets.
Asset quality, measured by the ratio of Non-Performing Loans (NPLs) to the total outstanding loans, improved to 5.3 per cent, from 5.4 per cent in September 2021, though marginally above the regulatory threshold of 5.0 per cent.
The improvement in NPL was due, mainly, to an increase in loan recoveries, as the economy continued to rebound. The liquidity ratio at 58.5 per cent was above the 30 per cent benchmark. However, compared to the level in September 2021, the ratio fell slightly by 2.6 percentage points.
