The excess liquidity in the banking system has not translated into lower market interest rates as the gap between deposit and lending rates continues to widen, latest data released by the Central Bank of Nigeria (CBN) show.
According to the April 2020 Economic Report released by the apex bank, a few days ago, “The spread between the average termdeposit and average maximum lending rates widened by 0.2 percentage point to 24.4 percentage points at end-April 2020. With inflation at 12.34 per cent in April 2020, these implied negative real rates for deposits, but positive real rates for the prime and maximum lending rates.”
Specifically, the report shows that: “From their levels in the preceding month, average prime and maximum lending rates fell marginally by 0.2 percentage points, apiece, to 14.9 per cent and 30.7 per cent, respectively, in April 2020. Average term-deposit rate also fell by 0.1 percentage point to 6.3 per cent.”
The report further states that owing to the excess liquidity in the banking system, Deposit Money Banks (DMBs) and merchant banks were more frequent at the CBN’s Standing Deposit Facility (SDF) window in February, compared with their decreased patronage at its Standing Lending Facility (SLF) window.
Lenders borrow from the CBN through its SLF window to carry out their business activities and meet obligations while they use the SDF window for deposit placement.
It will be recalled that in February this year, the Senate mandated its Committees on Finance, Banking, Insurance and other Financial Institutions to investigate reasons behind the huge gap between deposit and lending interest rates among commercial banks and other financial institutions.
Citing data from the CBN which indicated that savings deposit rate as at December 2019 was 3.89 per cent while prime and maximum lending rates were 14.99 per cent and 30.72 per cent respectively in the same period, the Senate had noted that there was a huge divergence between the deposit and lending rates in Nigeria, compared with what obtains in other parts of the continent.
New Telegraph had reported in June this year that following the CBN’s reduction of its benchmark interest rate, the Monetary Policy Rate (MPR) to 12.5 per cent from 13.5 per cent, lenders also responded by announcing a downward revision of interest rates on some of their savings products.
In e-mails to clients, some of the DMBs said that with effect from June 1, 2020, the interest rate on customers’ savings account had changed from 4.05% per annum to 3.75% per annum.
Analysts have said that given that inflation has been on the uptrend since September last year, hitting 12.82 per cent in July, it means that bank customers, in the foreseeable future, will continue to grapple with negative real rates (below inflation rate) for their deposits.