Savings rate, also known as deposit rate, rose to an all-time high of 5.18 percent as of June 2023, according to data published by the Central Bank of Nigeria (CBN).
It jumped from 2.96 percent in 2006, when the banking and financial industry regulator began the publication of money market indicators.
The surge in deposit rate was as a result of hikes in the Monetary Policy Rate (MPR), which is the CBN’s anchor or benchmark interest rate, analysts said.
The CBN raised the MPR to 18.75 percent in July 2023 from 11.5 percent in April 2022, data from the apex bank showed.
The key interest rate stood at 12 percent in 2014, while the deposit rate was 3.42 percent.
“As the MPR increases, the savings rate will increase since it is a fraction of the MPR. The savings rate is pegged at 30 percent MPR,” Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said.
In August 2022, the CBN raised the minimum interest rate payable to savings deposits to 4.2 percent from 0.15 percent.
The letter said effective August 1, 2022, the negotiable minimum interest rate on local currency savings deposits should be 30 percent of the MPR.
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Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest, said the savings rate has been pegged to 30 percent of MPR, hence the increase in MPR is responsible for the rise in savings rate.
“It’s mandatory to pay a minimum of 30 percent of MPR; it can’t be higher but not lower,” he said.
For Uche Uwaleke, professor of Capital Market at the Nasarawa State University Keffi, the rise in savings rate was driven by hikes in the MPR, which equally resulted in elevated lending rates.
“The reality is that the margin between savings and lending rates has remained wide, and the banks are quick to blame this on rising cost of doing business,” he said.
Some banks are already paying their customers an average interest rate on savings deposits above 5.18 percent.
Data published on the CBN’s website showed that 11 commercial banks were paying 5.25 percent average interest rate on deposits as at February 17, 2023.
The banks are Access Bank, Citibank, Fidelity, Heritage, Polaris, Premium Trust, Sterling Bank, Titan Trust, Unity Bank, Wema Bank and Zenith Bank.
Standard Chartered offered 5.31 percent average deposit rate; Coronation Bank, 6.78 percent; Ecobank, 4.65 percent; FCMB, 1.5 percent; First Bank of Nigeria, 4.20 percent; Globus Bank 1.40 percent; GTBank, 5.00 percent; Keystone 4.65 percent; Providus, 4.20 percent; Stanbic IBTC, 1.75 percent; SunTrust, 4.20 percent; UBA, 4.20 percent; and Union Bank, 4.95 percent.
After its two-day Monetary Policy Committee (MPC) in Abuja on July 25, the CBN raised its benchmark interest rate by 25 basis points to 18.75 percent.
Folashodun Shonubi, acting governor of the CBN, said the committee remained cautious in arriving at a policy decision as members noted the need to continue to support investment which will ultimately lead to the recovery of output growth.
“The balance of these arguments thus leaned in favour of a moderate rate hike, to sustain efforts at anchoring inflation expectation, narrow the negative real interest rate gap, and improve investor confidence,” he said.
Nigeria’s headline inflation rate accelerated year-on-year to 22.79 percent in June 2023 from 22.41 percent in the previous month.
The MPC commenced its series of monetary policy rate hikes to rein in inflation.
The decision of the MPC affects the cost of borrowing, said Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise.
“The more the interest rate goes up, it affects the operating costs of businesses that borrowed money from the banks,” he said.
