BORROWERS, whether old or new, may be in for another tough time as banks have increased interest rates on their facilities in line with the Central Bank of Nigeria (CBN's) new Monetary Policy Rate (MPR).
The new rates come into effect this week as memos sent to senior bank managers from their head offices directed them to henceforth reflect the new rates in all lending transactions. Some banks also ordered their officials to initiate the re-pricing of the interest rates on the subsisting loans with effect from this week in tune with the prevailing interest rate regime.
The Guardian learnt that the banks' actions were in response to the CBN's raising of its Monetary Policy Rate (MPR) last week by 100 basis points from 6.5 per cent to 7.5 per cent.
One of the banks, in a memo to its top managers, noted that "a review of the local money market revealed that the restrictive monetary policies put in place by the CBN at the last Monetary Policy Committee (MPC) meeting have started having adverse impacts on interest rates."
A review of rates movement at the weekend showed that the Nigerian inter-bank lending rates jumped to 10.41 per cent on the average from 9.25 per cent last week as the market adjusted to the increase in the MPR.
Similarly, the secured Open Buy Back (OBB) rose to 9.50 per cent from 8.50 per cent, indicating 200 basis points above the CBN's 7.50 per cent benchmark and 4.5 per cent points higher than the Standing Deposit Facility (SDF) rate.
Also, overnight placement rose to 10.75 per cent from 9.25 per cent, while call money climbed to 11 per cent from 10 per cent.
Financial experts told The Guardian that the increase in both the MPR and the rates in the inter-bank market would force banks to borrow from the CBN's window or resort to inter-bank borrowing to finance their operators for this week.
Owing to this, the banks are expected also to increase their loan margins in order not to run at a loss, a development that could shoot up the current interest on loans, now between 18 per cent and 22 per cent, to a higher level.
Based on this development, the bank wrote to its officials that "in view of the above, it is imperative that our risk assets are priced in line with the approved rate and consistent with market realities."
The memo, however, noted that "a review of our risk asset portfolio revealed a number of overdraft facilities that are inconsistent with market dictates.
"Therefore, concerted efforts must be made to re-price those facilities upwards in line with the bank's intent to realign with the direction of interest rates, thus improving on current interest margins," it stressed.
Last week, the CBN raised the MPR by 100 basis points to 7.5 per cent from 6.5 per cent.
The MPR is the benchmark interest rate at which commercial banks borrow from the CBN.
This is the third time the apex bank would raise the MPR since Malam Sanusi Lamido Sanusi became its governor in 2009.
The first was in September 2010 when it increased the rate by 25 basis points to 6.25 per cent from six per cent. The second occurred in January 25, 2011 when it was increased by 25 basis points to 6.5 per cent from 6.25 per cent.
Briefing reporters after the two-day meeting of the MPC, Sanusi had said the increase was informed by the need to further tighten monetary policy in view of the heighted risk of inflation.
"A majority of nine to three members of the committee voted for an increase in MPR by 100 basis points from 6.50 per cent to 7.50 per cent," he said.
Sanusi, who read the communiqué of the MPC, said the body drew attention to the rising international food and energy prices, the impact of import costs on domestic prices, the challenges which the fiscal stance posed to the external value of the naira as well as the likely front-loading of public expenditure in the election period.
He said the CBN retained the symmetric corridor of +/-200 basis points and the current Cash Reserve Ratio (CRR) of 2.0 per cent and the liquidity ratio of 30 per cent.
Besides, Sanusi disclosed that the apex bank also approved the extension of its guarantee on interbank transactions and guarantee of foreign credit lines by three months from June 30, 2011 to September 30, 2011.
Source: Banks hike interest rates over CBN's new lending rule (http://www.guardiannewsngr.com/index.php?option=com_content&view=article&id=43098:banks-hike-interest-rates-over-cbns-new-lending-rule-&catid=1:national&Itemid=559)