• Saturday, April 13, 2024
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BusinessDay

Customers feel the pinch as banks reprice assets

No more foreign currency collateral for naira loans — CBN

Customers will have to pay more to borrow as banks reprice their assets following a hike in the benchmark interest rate by the Central Bank of Nigeria (CBN).

Commercial banks are grappling with a dual challenge of soaring interest rates and stringent liquidity measures imposed by the CBN. These hurdles come amid a persistently inflationary environment, further complicating their operating landscape.

This means that loans, mortgages, and other forms of credit become more expensive.

The CBN, on February 27, 2024, increased the monetary policy rate (MPR) by 400 basis points to 22.75 percent from 18.75 percent in July 2023.

Following the raising of the interest rates after the Monetary Policy Committee meeting, deposit money banks have increased their lending rates.

Olumide Sole, a research analyst at Vetiva Capital Management Limited, said the hike in MPR has both positive and negative impacts on the bank’s earnings.

He said the hike will lead to higher interest income through asset repricing for banks.

“It would also lead to higher interest expenses. But overall, we expect net interest income to come in higher,” Sole said.

“Following the MPR hike last month, it’s expected that banks will reach out to their customers with open lending facility to review the rates of the facility,” Marvellous Adiele, senior associate, Parthian Partners, said.

“Also, the savings rate for deposits is also expected to increase. So technically, the ripple effect of the hike will be felt by the customers,” she said.

Zenith Bank has raised its lending rate by five percent from 25 to 30 percent, beginning from March 12, 2024.

In a notice to its customers, it said: “Accordingly, we are constrained to review the interest rate applicable on your credit facility(ies) effective March 12, 2024 as follows: Overdraft :Old rate :25 percent, New rate :pa 30 percent per annum.

“We crave your understanding as we continue to monitor the Market and update you accordingly. Please note that this is for your information and record.”

Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank, said lending rates that banks charge will increase under the current market conditions as CBN continues with a tight monetary policy stance to stabilise the naira and rein in inflation rate.

The latest report of the Economist Intelligence Unit (EIU) said: “Assuming inflation falls from 2025, we expect the CBN to begin unwinding its tight stance, with rate cuts beginning early in that year, despite inflation remaining above the ceiling of the CBN’s 6-9 percent target range. We expect the policy rate to fall to 12.5 percent in 2026 and remain there throughout the remainder of the forecast period.”