Flat loan books, flat rates

A chart with four interest rates covered by the CBN shows three broadly straight lines for the real economy and one line with many fluctuations for its interaction with the banks (the interbank rate). This chart has told the same story for many years. The interbank rate is driven by the CBN’s secondary market fx intervention sales (wholesale and retail), its OMO auctions and maturities, and FAAC distributions to state and local governments. The prime lending rate may appear attractive but is available only to a few, and likely to be topped up with fees.


  • 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 CBN series on money and credit aggregates puts DMBs’ lending to the private sector at N16.15trn in December 2018, representing a 4.1% increase  y/y but a 2.3% decline q/q. Beyond their blue-chip customers, DMBs are more comfortable buying FBN paper than lending to less established companies. The average maximum lending rate offers a far better return than FGN bonds or NTBs but such new borrowers require more credit administration and bring additional risk.

  • The CBN has launched several initiatives to offer affordable finance to priority sectors. Its role in development finance has its critics: the reality, however, is that the CBN and the state-owned development banks have moved into territory where the DMBs have declined to tread.


Selected interest rates (%; averages)

Sources: CBN; FBNQuest Capital Research


  • We have included inflation in our chart, which shows 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 the latest two and three-year issues pay 12.05% and 13.05% per annum respectively.

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