Lending rates: Senate berates CBN, seeks reduction
The Senate on Thursday condemned the high lending rates in the country, accusing the Central Bank of Nigeria of not encouraging investors with its monetary policy.
The Senate said the banking regulatory authority was not doing enough in balancing the deposit interest rate and lending rates with the aim of encouraging savings.
An exclusive report by The Punch had detailed the disparity between lending and interest rates that had forced banking customers into a difficult alley.
The chamber expressed concern that with higher lending rates, interest payments on credit cards and loans were more expensive.
It said the development was discouraging people from borrowing and spending.
It added that those who already have loans now have less disposable income because they spend more on interest payments.
It noted that low consumption would affect production in the real sectors of the economy.
The red chamber therefore mandated two of its committees to probe the CBN and the commercial banks involved in the monetary policy.
The committees are Finance and Banks, Insurance and other Financial institutions.
The panels are to investigate the rationale behind the huge difference between deposit and lending interest rates as obtained among commercial banks and other financial institutions.
The decision was taken sequel to a motion by Senator Solomon Adeola titled, “urgent need to bridge the gap between lending interest rates and deposit interest rates among commercial banks and other financial institutions.”
Adeola described interest rate as the amount of interest due per period, a proportion of the amount lent, deposited or borrowed.
He also said it was the proportion of an amount loaned, which a lender charges as interest to the borrower, normally expressed as an annual percentage.
He said there was a huge divergence between the deposit and lending rates in Nigeria.
Quoting data from the CBN, he said savings deposit rate as of December 2019 was 3.89 per cent while prime and maximum lending rates were 14.99 per cent and 30.72 per cent in the same period.
He expressed worry that Nigeria’s current lending rate remained one of the highest in the world.
He also said the prime lending rate, according to the CBN’s Monetary Policy Rate, is 14.99 per cent.
He said loans are available at the commercial banks and other banks at an interest rate of between 22 and 27 per cent;
Adeola further expressed worry that Nigeria’s inflation rate had risen to 11.98 per cent as of December 2019.
He said, “This is the highest inflation rate between January and December 2019.
“Latest data from the National Bureau of Statistics shows that the inflation rate further rose from 11.98 per cent in December 2019 to 12.13 per cent in 2020.
“This development negatively affects the deposits of commercial bank customers in addition to the low interest rates on deposits.
“The interest rate in some other African countries are not as wide as that of Nigeria.
“For instance, in Kenya, the deposit rate, savings rate and lending rate as of September 2019 were 6.89 per cent, 4.58 per cent and 12.47 per cent respectively.
“South Africa’s overnight deposit rate and lending rate as of February 20, 2020 were 6.34 per cent and 9.75 per cent respectively.
“The base rate in India ranges from 8.45 9.40 per cent vis-a-vis a savings deposit rate of 5 3.50 per cent.
“Fixed Deposits in India interest rates range from 4.50 per cent per annum to 5.75 per annum for deposits with a tenure of seven days to less than 365 days.
“These deposits are known as short term deposits as they are of less than one year.
“Short term Indian Bank rates for senior citizens range from 5.00 per cent to 6.25 per cent per annum but Central Bank of Nigeria is yet to borrow from the good practices of these countries to improve our and protect the interest of depositors some of whom are elderly pensioners.”