24022020

20 — Vanguard, MONDAY, FEBRUARY 24, 2020
FINANCIAL VANGUARD
Banks’ lending rates defy crash in TB yields
Continues from page 19
COVER
percent in the corresponding
period of 2018 (Q4’18).
Similarly, average prime
lending rates fell to 14.99
percent in Q4’19 from 16.45
percent in Q4’18.
This marginal change is
also reflected in interest
rates charged by the top 11
banks on loans to the oil and
gas, and the manufacturing
s e c t o r s w h i c h
accounted for 43 percent
of banks’ loan book as at
31st September 2019.
The eleven banks are
Access Bank, GTBank, First
Bank, UBA, Zenith Bank,
Union Bank, Stanbic IBTC,
Ecobank, Fidelity Bank,
FCMB, and Sterling Bank.
F i n a n c i a l
Vanguard analysis
of bank’s deposit and
lending rates published by
the CBN, showed marginal
declines of 85 bpts and 25
bpts respectively in
the average maximum
lending rates for loans to the
oil and gas sector, and
the manufacturing sector.
But the average prime
lending rate for loans to the
oil and gas sector rose by
60bpts, though it decline
marginally by 25 bpts for
loans to the manufacturing
sector.
Further analysis, however,
shows a narrowing of gap in
rates between Tier-1 and
Tier-2 banks with divergent
movement in the average
maximum lending rates
charged by the banks, where
the former trended upwards
while the later went down.
But Tier-2 banks’ rates
remained higher.
For the Tier-1 banks,
namely Access Bank,
GTBank, First Bank, UBA,
Zenith Bank, the average
maximum lending rates for
loans to the oil and gas, and
the manufacturing sectors
rose by 70 bpts and 50
bpts respectively to 28.5
percent and 27.9 percent in
February 2020 from 27.8
percent and 27.4 percent in
February 2019.
For the Tier-2 banks,
namely Union Bank, Stanbic
IBTC, Ecobank, Fidelity
Bank, FCMB, and Sterling
Bank, the average maximum
lending rates for the oil and
gas sector dropped by 240
bpts to 31.5 percent in
February 2020 from 33.9
percent in February 2019.
Their average maximum
lending rate for the
manufacturing sector
dropped marginally by 25
bpts to 29.5 percent in
February 2020 from 29.75
percent in February 2020.
Marginal
declines
The marginal declines in
banks’ lending rates,
according to Professor Mike
Obadan, a member of the
CBN’s Monetary Policy,
reflects unwillingness on the
part of banks to reduce
lending rates.
Stressing that the high
lending rates charged by
banks, in spite of the low
interest rate regime in the
fixed income market, could
impede efforts to increase
lending to the economy, he
called for measures to compel
banks to lower their lending
rates.
In his personal statement
at the last MPC meeting held
in January, the Professor of
Economics and Board
member of the CBN stated:
“The liquidity build-up
continues as long as the
OMO bills held by these
agents mature. Monetary
policy stance would need to
take cognisance of this factor.
The above policies have led
to the crash of deposit rates,
particularly, term or fixed
deposit rates which are now
even less than the savings
rates in most cases. “But the
data do not show the lending
rates as crashing in a similar
manner, thus leaving the
spread between the lending
and savings rates even wider
than before. Commercial
banks have no reason to
maintain very high lending
rates in the face of exploitative
low savings rates.
“They would need to be
compelled to do the needful;
otherwise they are
undermining the essence of
the policies. In other words,
the very high rates have
adverse implications for
financial intermediation and
effectiveness of monetary
policy transmission
channels.”
His comments were,
however, contradicted by the
Acting Managing Director/
Chief Executive, Coronation
Merchant Bank, Dayo
Adegbohungbe, who averred
that banks have significantly
reduced lending rates.
“From our experience
actually, the reverse of what
you said is what we are
experiencing on the lending
side,” he said.
Responding to Financial
Vanguard while addressing
the press on the sidelines of
the Coronation Breakfast
Session in Lagos last week,
But the data do
not show the
lending rates as
crashing in a
similar manner,
thus leaving the
spread between
the lending and
savings rates
even wider than
before
Adegbohungbe said: “It is
true that deposit rates
always adjust faster when
there is a shift either
downward or upward. So,
deposit rates initially
adjusted much faster and
then lending rates adjusted
significantly as well.
“If you talk to any corporate
banker, they will tell you that
their lending rates have
dropped significantly from
let’s say a year ago. And
when I say significantly, I
just don’t want to quote
figures but I mean really
significantly. Not only that,
if you talk to bankers, talk
to the treasurer, finance
director or managing
directors of any of these
sectors, manufacturing, etc,
ask them if their interest rates
are the same as they were a
year ago or eight months ago.
They will tell you their rates
have dropped and they are
taking advantage of those
rates to make investment
decisions, those that they
probably would not have made
before the reduction in
interest rate.
“But for SMEs that you
talked about, when you look
at the pricing, you know
pricing is always risk based.
It is true that you have a
brand of pricing or maybe
corporate may enjoy better
pricing and the SMEs and
Individuals are at the high
end of the curve.
Overall pricing
curve
“Then the overall pricing
curve has shifted basically
because everybody is trying
to lend to the same group of
potential obligors from a risk
stand point and as a result
of that, the leverage
of pricing has really shifted
from the banks to the
customers.”
Members of the Organised
Private Sector (OPS) were
however divided in their
assessment of change in the
lending rates charged by
banks.
While, Muda Yusuf, Director
General of the Lagos
Chamber of Commerce and
Industry
(LCCI)
c o r r o b o r a t e d
Adegbohungbe’s claim that
banks’ have significantly
reduced
lending
rates, Frank Onyebu,
Chairman, Manufacturers
Association of Nigeria
(MAN) Apapa branch,
differed, saying the
reduction in lending rates is
cosmetic.
According Muda Yusuf,
“The lending rates have been
significantly reduced
especially for the corporate
customers. Not necessarily for
the small customers but for the
large to medium customers.
And lending rates have gone
down though I can't give you
specific numbers now but the
feelers I am getting is that it
has gone down significantly.
“First, there is this LDR
(Loan to Deposit Ratio) policy,
which was increased to 65
percent. That has had
significant effect. In fact I
have seen some corporate
customers telling me that
banks are now chasing them
with loans, they are going
after them, to offer them
credit so that they can meet
up with the LDR.
“Then the fact that yields
on NTBs have also come
down, the kind of pressure
that was generating on
interest rates, that pressure
has also gone down. So
generally I think there has
been a significant moderation
in interest rates.”
Frank Onyebu however
disagreed, saying, “The so
called reduction in rates is
mostly cosmetic because
rates are still unrealistically
high and highly toxic to
business. Manufacturers
Association of Nigeria has
always advocated for a single
digit interest rate for
manufacturers. Anything
short of this will put our
members in perpetual
disadvantage knowing we
also have to grapple with the
problem of electricity as well
as other challenges.”