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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.”
FINANCIAL VANGUARD Vanguard, MONDAY, FEBRUARY 24, 2020 — 21 Excess liquidity to persist as N1.7trn inflow hit interbank market Continues from page 19 liquidity from OMO inflows worth NGN927.75 billion on Thursday.” Similarly, analysts at Afrinvest Limited stated: “In the coming week, we expect inflows of N927.8 billion •Interbank lending rates from OMO maturities and we believe the CBN to conduct OMO auction. We believed increased liquidity resulting from the huge inflows from OMO maturities will pressure yields in the secondary treasury bills market.” The inflow of N1.7 trillion is also expected to increase demand for FGN bonds this week and hence further appreciation in bond prices. “With over N950 billion of OMO maturities to come in next week, we expect significant demand, as investors’ scramble to lock-in excess funds at attractive yields”, said analysts at Zedcrest Capital Limited in their forecast for the week. In the same vein, analysts at Cowry Asset Management Limited, said: “In the new week, we expect OTC bond prices to appreciate (and yields to moderate) against the backdrop of expected boost in financial system liquidity.” Making a similar projection, analysts at Cordros Capital stated: “We expect sustained demand next week across the bond yield curve, as market players seek to re-invest excess liquidity from incoming maturities.” Naira gains as external reserves sheds $536m The naira appreciated in the parallel market and in the Investors and Exporters (I&E) window last week even as the CBN sustained its weekly dollar injection of $210 in the interbank foreign exchange market. The naira appreciated by 50 kobo in the I&E window as the indicative exchange rate dropped to N364.26 per dollar last week from N364.76 per dollar the previous week. Similarly the naira appreciated by 20 kobo in the parallel market as the exchange rate of the market dropped to N358 per dollar last week from N358.2 per dollar the previous week. But the decline in the nation’s external reserves deepened last week, as the reserves fall to $36.695 billion on Thursday, February 20 from $37.231 billion on Thursday, February 13. This translated to week-on-week (w/w) decline of $536 million, representing 8.5 percent when compared to the w/w decline of $494 million the previous week. According to analysts at Cowry Assets, “In the new week, we expect stability of the naira against the dollar across the market segments as CBN sustains its intervention; although at a cost to Nigeria’s external buffers.” Analysts at Cordros Capital however warned that efforts of the CBN to defend the naira cannot be sustained beyond the first half of the year (H1’20). They said: “Looking ahead, we expect the still healthy foreign reserves to support the CBN’s currency defence over H1-20. Further out, the blend of tighter cash inflows, faster pace of capital repatriation, and possible resurgence of speculative attacks on the naira will force the CBN to throw in the towel in our opinion.” Forex & TB rates Yields on FGN bonds
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