CBN, MPC, Customers Satisfied With Direction Of Interest Rates

The direction of average interest rates over the year to first quarter of 2019 is welcome to the Central Bank of Nigeria (CBN), the Monetary Policy Committee (MPC) and customers of the deposit money banks (DMBs): the prime and maximum lending rates have fallen by 120 basis points (bps) and 110bps respectively, while the term deposit rate has inched upwards by 60bps over the period.
Proshare said, the spreads between lending and deposit rates remain substantial by any criteria, however, reflecting the modest level of financial intermediation and prompting regular calls from the CBN and the MPC for much larger loan books.
According to FBNQuest Research, there has been a pick-up in credit to the private sector of 12.0 per cent Year-on-Year ( y/y) to N24.9 trillion in May according to the CBN’s broadest headline measure, which would include, for example, DMBs’ loans to state governments.
To provide some perspective, at end-March 2019 total loans and advances by microfinance banks amounted to N208 billion; primary mortgage institutions to N156 billion; and the state-owned Bank of Industry, Bank of Agriculture and Nexim Bank to a combined N817 billion.
These loan books, notably for the Bank of Industry, have rapidly increased but not at a pace to satisfy the CBN and the MPC. Their pressure on the DMBs to lend to SMEs, and sectors with a record for job creation has not abated.
In contrast to the rates for the real economy, the interbank moves sharply in response, inter alia, to the CBN’s open market operations (OMO) and foreign exchange transactions, and monthly FAAC distributions to state and local governments.
data shows that term deposit rates are consistently negative when adjusted for inflation. As an alternative, retail investors could place their monies in mutual funds or FGN savings bonds, for which the latest two and three year issues pay 11.195 per cent and 12.195 per cent per annum respectively.

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