It is a well known fact that the perennial issue of high lending rate to the real sector, particularly to the manufacturing sector, has remained a clog in the wheel of growth in the country’s economy.
With manufacturing sector contribution to the national Gross Domestic Product (GDP) at 1.12 per cent in the first quarter of 2012 – well below the target of 15 - 20 per cent required for us to become one of the top 20 countries in year 2020 manufacturers are generally in accord that the greatest impediments to industrial expansion are the poor power infrastructural base and the relatively high cost of funds. While there is, of course, no doubt that power supply is significant, but it is certainly not as critical as the high cost of funds which hovers between 20 – 30 per cent.
Bankers have always defended their high interest rates, attributing it to high operating costs occasioned by decaying infrastructure.
For instance, their 2011 audited financial accounts showed very high cost to income ratio. According to the financials, GTBank showed that its cost to income ratio stood at 50.82 per cent; First Bank, 56.8 per cent; Zenith Bank, 62.76 per cent; FCMB, 61 percent; Access Bank, 73 percent and UBA, 75 per cent, among others. And with these figures they justified their high interest rates, insisting that lending would continue to come at high costs unless government intervened to address infrastructure deficiency.
However, bankers last week came out to say that interest rates in the country are falling contrary to widespread believe.
According to the banks, interest rates only appeared high because banks do not adopt uniform standard for all customers.
Managing Director, Sterling Bank Plc, Yemi Adeola who briefed on behalf of other bank managing directors at the end of the 308th Bankers Committee said it was incorrect to say that interest rates in the country were high adding that banks cannot adopt same standard for all customers.
“It would not be correct to say that interest rates are very high. You cannot adopt a uniform standard; it is always a function of the nature of risk that you are taking. As they say, if the risk is high, perhaps the rate will be high.
But I can tell you there are many customers borrowing at 15 per cent. In fact there are some people in the country today who are borrowing at 10 or 11 per cent. If the risk is good and we look at the credit and if it is the kind of credit that we believe that having done your analysis, they are okay and the customers are tested and proven interest rates for such customers are indeed very low.
Where the business is highly risky but you still want to extend facility to assist the economy then the rates would be 15 or 16 per cent. But remember that there was a time when banks were lending at 28, 30 per cent. But those days are gone,” he said.
Despite this claim, data from the Financial Market Dealers Association (FMDA) showed divergent position concerning lending rates.
The FMDA in its monthly financial and economic report for June, 2012 indicated that monthly average prime structured loan stood at of 18.2381 per cent to record a marginal change relative to May 2012; while the normal structured loan increased to 21.0476 per cent from 21.0 per cent recorded in the previous month.
On the other hand, savings figures have averaged 2.3335 per cent for six months running while other tenured funds ranged between 2.4838 per cent - 8.3665 per cent for overnight to 364 days money.
The spread between the deposit and lending rates widened moderately relative to last month’s.
Interbank Lending Rates
The report noted that the interbank market in the month under review was characterised by liquidity squeeze which persisted in most parts of the month such that after the release of the FAAC funds, system figure remained in the negative territory. The month recorded the lowest inflows so far since the beginning of the year as market players accessed the CBN Standing lending Facility window more in the month occasioned by depressed liquidity in the system. Consequently, the month of June recorded the second highest rates after February. Available data showed that the June recorded only one OMO auction the first day to mop up increased disbursements that ended the month of May. Market opened the month with rates on the back of low system liquidity balance as a result OMO funding of N47.89 billion.
Rates tilted northwards the first week of the month, due to outflows from the system via Foreign exchange debits of N133.74 billion and OMO auction worth N14.11billion despite matured bills put at N29.46 billion to close the week at 14.9583 per cent, 15.25 per cent and 15.6667 per cent for call, seven days and 30 days respectively
Rates behaviour was mixed in the fourth week following the payment of FAAC funds totalling N312.28 billion and net Treasury bills inflow worth N88.89 billion; withdrawal came from foreign exchange put at N110.23 and Bonds funding of N83.91 billion to close the month at 15.0833 per cent, 15.5833 per cent and 16.0417 per cent for Call, seven days and 30 days respectively
On monthly average, rates spiked for all the observed tenors in the month under review when compared with the average rates of the previous month due to prolonged illiquidity relative to the preceding month.
Foreign Exchange Rates
The apex bank offered and sold USD$3.40 billion in relation to USD$1.62 billion sold in May 2012 showing an increase of 109.88 per cent. The northward trend of demand from the WDAS window was on the back of depressed dollar inflow from energy giants estimated at $800 million and increased importation of both capital and consumer goods.
The CBN official market window that showed resilience last month headed the direction of other market segments in the month under review. All the four markets depreciated on average by 16 kobo at CBN, N3.97 at Interbank, N4.00 at BDC and N4.26 at the parallel market relative to May’s average rate. The loss could be hinged on decreased complementary inflows from autonomous sources, Offshore investors’ selling down their Treasury bills and Bonds holding estimated at $5 billion in view of the relaxation of exit policy of the CBN and increased importation of consumer and capital goods. There were occasional interventions in the market by Central Bank to smoothen the recurring volatility in the foreign exchange market.
The foreign exchange traded between N155.75/$ – N155.94/$ at WDAS, N160.55/$ – N163.4125/$ at Interbank, N159.96/$ – N164.5/$ BDC and N162 /$ – N165/$ at parallel market.
At the Inter-bank market, Naira-Dollar relationship opened at $1/ N160.5500 for Offer rate and closed at $1/N163.125 against the closing rate of $1/ N159.9675 in May 2012. The BDC and parallel markets closed the month at $1/ N164 and $1/ N165 respectively.
Nigerian Treasury Bills
The rate of return in the primary Market Auction rallied on average in the month under review when compared with the average rate of the previous month in order to attract sufficient inflow to support the domestic currency and simultaneously mop up excess liquidity in the system. Meanwhile, Central bank allotted N373.16 billion against N273.39 billion bills in May 2012. Subscription in the month slumped to N683.67bn relative to N820.74 billion in previous month. At the first, second and third auction in the month under review, 91 days stop rates averaged 14.08 per cent against 13.35 per cent last month; 182 days averaged 15.19 per cent relative to 14.01 per cent in May, while 364 days bills averaged 15.65 per cent when juxtaposed with 14.12 per cent of the preceding
Available data revealed that only one OMO auction session was conducted occasioned by prolonged system illiquidity, consequently, the Central Bank of Nigeria sold N14.12 billion against N363.00 billion sold in May in 62-day Tenor. Public subscription was N48.22 billion relative to N956.24 billion in the preceding month. The sharp decline in OMO sales recorded was on the back of reduced injection into the market.
A quick summation of (PMA & OMO) showed that the month recorded N559.67 billion (335.76 PMA & 223.91 OMO) against N525.19 billion in May. The net inflow stood at N172.39 billion relative to N111.20 billion net withdrawal recorded the previous month.