‘Recapitalisation Pushes Bank Lending Rates To 22–23%’

The recapitalisation of Nigerian banks has pushed commercial lending rates below the Central Bank of Nigeria’s (CBN) Monetary Policy Rate (MPR), with some lenders now offering loans at between 22 and 23 per cent, the managing director/chief executive officer of Coleman Technical Industries Limited, George Onafowokan, has said.

Onafowokan said the increased capital injected into the banking system had boosted liquidity and intensified competition among banks for lending opportunities, forcing actual market lending rates below the previous policy rate of 26.5 per cent.

He described the recent reduction in the MPR as a “reset” designed to align monetary policy with prevailing market realities.

According to him, the gap between the CBN’s policy rate and actual lending rates had become increasingly pronounced as banks, following the recapitalisation exercise, began offering credit at rates significantly below the benchmark.

“The market found its own level based on the amount of liquidity and the new money in equity in the market. And so it repositioned itself and started lending lower than the CBN was,” he said.»

Onafowokan explained that the recapitalisation exercise had significantly strengthened the equity positions and lending capacity of financial institutions.

He noted that banks with capital bases of about N50 billion had been required to increase them to N200 billion, while institutions with N200 billion were required to scale up to N500 billion.

He said the additional capital increased liquidity within the financial system and enabled banks to compete more aggressively for borrowers, resulting in lower lending rates.

Onafowokan, however, said the impact of the CBN’s latest rate adjustment would not be immediate, but would gradually filter through the economy over the next two to three months.

He also warned that lower interest rates could affect treasury bill yields and, consequently, influence the investment decisions of foreign portfolio investors.

However, he maintained that Nigeria would remain attractive to foreign investors because of the relatively high returns available in the market.

The Coleman chief executive also called for a reduction in the Bank of Industry’s (BOI) lending rate, urging the CBN, Ministry of Finance and the federal government to support the development finance institution in returning to a lower lending rate that reflects its mandate.

Onafowokan said the broader economy was moving in the right direction, citing economic growth of above four per cent, declining inflation and relative stability in the naira.

He urged Nigerians to remain confident in the local currency, saying the prevailing economic indicators pointed to an improving outlook.