It would be recalled that the last time the Central Bank of Nigeria (CBN) changed the interest rate was in July 2016 when it lifted the monetary rate by 200 bps. And as of 25th of September 2018, the bank interest rates in Nigeria has remained the same at 14 percent.
If you’re looking to borrow money from any Nigerian bank, it would be great if you had an idea of the interest rate. And this is why we have decided to provide an overview of the past and present interest rate in the country and its implications.
Bank Interest Rates in Nigeria: Past & Present
From 2007 to 2018, the interest rate in Nigeria averaged 10.88 percent reaching an all-time high of 14 percent in July of 2016 and a record low of 6 percent in July of 2009.
In 2017, the CBN released a new set of guidelines on the interest rate for banks and other financial institutions.
We have highlighted some of this information below.
For interests on deposits, banks are mandated to pay an interest of not less than 30 percent of the monetary policy rate for any cash on savings deposits. This translates to an estimated 4.2 percent per annum considering that the MPR as of March 2017 was 16 percent. The MPR is the rate at which banks borrow money from the CBN.
On the other hand, for deposit held as collateral, the bank will pay a negotiable interest rate which is subject to a minimum of 30% of MPR. Simply put, if you take a loan from your bank and you use your cash deposits as collateral, the bank will pay you a minimum of 30 percent MPR which is 4.2 percent.
The interest rates are flexible for local currency loans but should reflect MPR. This means that if the bank wants to charge you an interest rate on loans, it should be MPR plus X%.
Also, when there is rate change, the bank should notify the customer 10 business days in advance.
If you are using the rate for mortgage financing, the CBN states that the rates are negotiable subject to a maximum of MPR plus 5 percent. This implies that those seeking mortgage loans are expected to pay 19 percent based on the current MPR of 14 percent.
For defaulters, the CBN places a maximum of 1 percent flat per month of the unpaid amount in addition to charging current rate of interest on outstanding debt.
Additionally, the management fee charged on loans is limited to a maximum of 1 percent of the principal amount disbursed and should be a one-off charge.
Facility enhancement fee will attract a negotiable but subject to a maximum of 1 percent of the additional charge discharged. For example, if you collected a loan of 100m and decided to take another loan of 10m from the same bank, the charge on the 10m will be a maximum one-off fee of 1 percent of the 10m.
However, the management fee and facility enhancement cannot be charged simultaneously. Also, the management fee is only charged for all shared requests and renewal of expired facilities.
There is also a one-off restructuring fee which is also negotiable but subjected to a maximum of 0.5 percent of the outstanding amount being structured. The restructuring fee means that if you have a loan that you want to restructure either for a longer tenor or lower interest rate or increased facility amount, you need to pay this fee.
Another fee which a part of the loan package is the one-off commitment fee which is also negotiable subject to a maximum of 1 percent on the undisbursed amount of the facility. this means that if you obtained a facility of the 100m and have been disbursed 20m from the bank, based on your disbursement terms, the bank can charge you 1 percent for the balance of 80m.
Over the years, there have been calls for banks to give single digit loans. Although it is not possible to give this type of loan to everyone, there are specific sectors that are critical to the economy and can benefit from this type of financing.
Interesting, the CBN has revealed that commercial banks can lend to the manufacturing and agricultural sectors from their cash reserve requirement (CRR) as an incentive for deposit money banks to increase lending to both sectors.
In terms of the CBN’s recommended lending rate, many banks have declined to toe the apex bank’s policy line. As of February 2018, the data from the CBN revealed that maximum lending rate was 31.4%. This is the highest we’ve ever seen since the Central Bank started collating this data in 2006. The maximum lending rate is the highest average lending rate banks charge. It is typically higher than the Prime Lending Rate. CBN data keeps Prime Lending rate at 17.5% for February 2018 lower than the all-time high of 19.6% reported for November 2009.
The savings rate, which is the rate paid by banks to encourage saving money in the bank was 4.07% as of February 2018. The savings deposit rate is typically low and single digits and is different from the Fixed deposit rate because unlike the latter it has no restriction or penalties on withdrawals.
We have provided an overview of this rate from January 2017 to February 2018.
Month / Savings Deposit / Prime Lending / Max Lending
Jan-17 / 4.22 / 16.91 / 28.88
Feb-17 / 4.22 / 17.13 / 29.26
Mar-17 / 4.23 / 17.43 / 30.18
Apr-17 / 4.24 / 17.44 / 30.31
May-17 / 4.08 / 17.58 / 30.75
Jun-17 / 4.08 / 17.59 / 30.94
Jul-17 / 4.08 / 17.65 / 30.94
Aug-17 / 4.08 / 17.69 / 31.2
Sep-17 / 4.08 / 17.88 / 31.39
Oct-17 / 4.08 / 17.86 / 31.39
Nov-17 / 4.08 / 17.77 / 30.95
Dec-17 / 4.08 / 17.71 / 30.99
Jan-18 / 4.07 / 17.5 / 31.39
Feb-18 / 4.07 / 17.53 / 31.4
The chart above shows how wide the gap between Savings, Prime and Maximum Lending Rates currently is in Nigeria. Between Savings and Prime Lending Rate the gap is about 13.5% while the gap between Savings deposit rates and the Maximum lending rate is a whopping 27.4%, the highest we have also seen since 2006.
Overall, the banking industry is in a better position to lend now. Based on available data forecast of key macroeconomic indicators, the economy shows a positive outlook and according to the MPC, the sustained implementation of the 2018 budget should improve in the security situation and sustained stability in the foreign exchange market will stabilize prices and strengthen economic growth.