Declining loan books, flat rates

An update of selected interest rates through to August tells us that the narrative is unchanged. Of the four rates monitored by the CBN, only the inter-bank moves significantly between months. The drivers are the CBN’s secondary market intervention sales (wholesale and retail), its OMO auctions and maturities, and FAAC distributions to state and local governments. Among the rates for the real economy, the prime lending rate appears attractive for borrowers. It is, however, available only to a select few, and may well be topped up with fees and commissions.


  • These real economy rates rarely move because, as in many other markets, the deposit money banks (DMBs) are not engaged in serious competition with one another. Nor have they ventured meaningfully into credit to SMEs.

  • The recent trend has been one of declining loan books. From the consolidated statement of DMBs’ assets in June 2018, we see that loans and advances to other private-sector customers fell by 5.8% y/y to N13.1trn. Their holdings of FGN bonds and NTBs also fell, by 36.1% to N3.3trn, but this was more than balanced by an increase of N3.0trn in holdings of CBN bills.

  • There have been several CBN initiatives to encourage affordable finance to priority sectors. Under the real sector support facility, the DMBs can apply for the release of funds from their CRR for such lending with an interest rate cap of 9%. The response has been underwhelming: the rate and/or the tenor (minimum of seven years) may not appeal. The authorities are recapitalizing development banks in an effort to boost lending.

Sources: CBN; FBNQuest Capital Research


  • We have included inflation in our chart and can see that the return for term depositors is consistently negative in real terms. These investors would do better to transfer to mutual funds or FGN savings bonds, for which there is a minimum subscription of N5,000.

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