Following the Central Bank of Nigeria’s (CBN) third consecutive increase in benchmark interest rates, customers who have borrowed from banks are set to experience a surge in interest payments.
After its two-day Monetary Policy Committee (MPC) meeting in Abuja, the CBN announced a 150 basis points hike in its monetary policy rate (MPR), elevating it from 24.75 percent in March to 26.25 percent.
In response to this development, some commercial banks have begun adjusting their assets. Guaranty Trust Bank (GTBank), for example, has informed its customers of an increase in interest rates on its loan facilities.
In a notice to customers, GTBank stated that the decision to revise interest rates upwards was prompted by prevailing money market conditions characterized by rising interest rates. This adjustment will particularly impact customers with existing MaxPlus loan facilities, with the current interest rate of 27 percent being raised to 28.5 percent, effective from June 5, 2024.
While expressing gratitude for customers’ continued patronage, GTBank informed them of the impending changes in their loan terms, attributing the decision to the evolving money market dynamics marked by increasing interest rates.
“To this end, please be advised of an upward review in the applicable interest rate(s) on your loan facility or facilities as highlighted below:
“Facility Type : MaxPlus Existing Interest Rate (%): 27
New Interest Rate (%): 28.5 Effective Date: 5th June 2024
Please be assured of our appreciation of your esteemed patronage always. We will continue to provide updates.”
Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, a pan-African credit rating agency, noted the impact of CBN regulations on banks’ interest rates. According to him, the relationship between interest rates and the CBN’s Monetary Policy Rate is pivotal. He stated, “It’s not that banks like to raise interest payments. Banks do not have a choice, once the CBN increases MPR, the bulk of them will raise the interest payment.
Elaborating on the nature of bank loans, Olubunmi emphasised their flexibility, noting that “the loans are flexible interest rate loans for which the interest rate is not stagnant. It’s even written subject to macroeconomic conditions.” He attributed recent interest rate adjustments to decisions made by the MPC, stating, “It was because the MPC raised the MPR that is why banks are actually increasing interest payments.
He observed a trend among banks reallocating funds towards government securities due to their increasing attractiveness amid rising rates.
On the impact on customers, Olubunmi said, “On the side of the customer, it also means the cost of borrowing is higher because you have a higher interest rate to pay. There will be reluctance to take bank loans and there will be a reduction in credit to the economy.” He emphasised the potential consequences of elevated interest rates on borrowers and the overall credit activity in the economy.
