Customers who borrowed money from the banks will begin to witness a surge in interest payments, following the third straight time increase in benchmark Interest rate by the Central Bank of Nigeria (CBN).
The CBN on Tuesday after the two days Monetary Policy Committee (MPC) meeting in Abuja, raised Its monetary policy rate (MPR) by 150 basis points to 26.25 percent from 24.75 percent in March 20234.
Some commercial banks have responded to the development by reprising their assets.
In a notice addressed to its customers, GTCO announced a decision to increase the interest rates on its loan facilities. The decision, as outlined in the notice, comes in response to prevailing money market conditions characterised by a general uptick in interest rates.
According to the notice, the adjustment will affect customers with existing MaxPlus loan facilities, with the current interest rate of 27 percent being revised upwards to 28.5 percent. The new interest rate is set to take effect from the 5th of June, 2024.
GTBank expressed appreciation for the continued patronage of its customers while notifying them of the forthcoming changes in their loan terms.
GTCO wrote, “the decision to review the interest rate on your facility upwards. This decision was taken in view of the current money market conditions characterised by a general rise in interest rates.
“To this end, please be advised of an upward review in the applicable interest rate(s) on your loan facility or facilities as highlighted below:
“Facility Type : MaxPlus Existing Interest Rate (%): 27
New Interest Rate (%): 28.5 Effective Date: 5th June 2024
Please be assured of our appreciation of your esteemed patronage always. We will continue to provide updates.”
Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, a pan-African credit rating agency, noted the impact of CBN regulations on banks’ interest rates. According to him, the relationship between interest rates and the CBN’s Monetary Policy Rate is pivotal. He stated, “It’s not that banks like to raise interest payments. Banks do not have a choice, once the CBN increases MPR, the bulk of them will raise the interest payment.
Elaborating on the nature of bank loans, Olubunmi emphasised their flexibility, noting that “the loans are flexible interest rate loans for which the interest rate is not stagnant. It’s even written subject to macroeconomic conditions.” He attributed recent interest rate adjustments to decisions made by the MPC, stating, “It was because the MPC raised the MPR that is why banks are actually increasing interest payments.
He observed a trend among banks reallocating funds towards government securities due to their increasing attractiveness amid rising rates.
On the impact on customers, Olubunmi said, “On the side of the customer, it also means the cost of borrowing is higher because you have a higher interest rate to pay. There will be reluctance to take bank loans and there will be a reduction in credit to the economy.” He emphasised the potential consequences of elevated interest rates on borrowers and the overall credit activity in the economy.
