Banks Slash Lending Rate to Big Corporates


By Emele Onu, 07.11.2010 


The announcement of the award of National Honour on the Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi, raised interest at the money market last week.  Dealing banks, traders as well as investors in the market, local and international, were concerned about the implication of the recognition on the current state of the market in the medium and long-term.


Although cost of funds remains high in the money market, THISDAY investigations revealed that some banks have actually cut their lending rates significantly to make it easy for big corporations to access funds, hitherto starched in their coffers.The big corporates, mainly the prime customers of the banks with thriving businesses in the food sector, manufacturing and processing, telecommunications and services among others, are accessing credit from banks at rates in the region of 11 per cent per annum, which is quite low compared to average maximum lending rate in the market at over 20 per cent.


A treasury with one of the banks explained: “There is no high risk premium on the transactions, unlike when lending to other customers of the bank.” He added: “These are people and organisations that the banks have been dealing with, have come to understand their businesses and can predict the future. Remember that the operating business environment in Nigeria is difficult and so when a customer comes to the bank to borrow money, he doesn’t  just have to contend with the cost of the funds to the bank but the risks associated with his business, since a bank puts all that into consideration before arriving at the interest rate,” he said.  


The Central Bank of Nigeria (CBN) noted at the end of its monetary policy committee meeting last week that developments in interest rates structure indicated that the retail lending rates were still relatively high even though they were declining.According to the Committee, average maximum lending rate dropped to 22.56 per cent in May 2010, from 23.45 per cent in December, 2009. Also, average prime lending rate fell to 18.77 per cent in May 2010, from 19.03 per cent in December 2009.The result of trading activities at the inter-bank money market showed Nigerian Inter-bank Offer Rates (NIBOR), which had remained at about 1 to 2 per cent increasing last week.


The inter-bank lending rates rose to 8.25 per cent on average from 2 per cent the previous week after NNPC caused a major outflow, by withdrawing  about N100 billion from the system. There was outflow to foreign exchange and fixed income securities purchases. There was also a dry up of the fiscal inflow in the system, both factors causing the rates to rise, one of the traders said.The NNPC reportedly sold about $600 million to some banks in the last two weeks and recalled part of the naira proceeds to its CBN account last week in compliance with CBN’s monetary control measures.


At the foreign exchange market, the naira, which gained 5 kobo  at the first bi-weekly auction last Monday lost the 5 kobo at the second auction (last Wednesday) to exchange N148.50/$1. At the inter-bank market, the naira eased to N150.22 to the dollar from 149.70, which ended its two-week rally against the dollar.


Interest, Lending, Inter-bank, Securities Trading

As stated earlier, the big corporates majorly – the prime customers of banks with thriving businesses in the food sector, manufacturing and processing, telecommunications and services among others are accessing credit from banks at rates in the region of 11 per cent per annum, which is quite low compared to average maximum lending rate in the market at over 20 per cent. But lending rate to the private sector remains high, with the flow of credit falling to the very low levels.


The CBN in its market and economy review last week noted that as at May, 2010   aggregate domestic credit (net) grew by 12.38 per cent over the December 2009 level, and by 29.72 per cent when annualised, which was still below the 2010 indicative target of 55.54 per cent. Credit to government (net), which grew substantially by 50.87 per cent over end-December 2009 (or 122.1 per cent on annualised basis), was the major contributor. Credit to the private sector declined by 1.88 per cent (or 4.51 per cent on annualided basis), in contrast to the growth benchmark of 31.54 per cent for 2010.


The CBN further disclosed that the substantial growth of credit to government (net) against the backdrop of declining private sector credit reflected the risk aversion of banks to lending to non-government borrowers, adding that the “Committee believes that in order to provide the private sector with the necessary credit to grow the economy, further efforts are needed to unlock the credit market in order to enhance the flow of credit to the real economy.


The CBN noted that average savings rate dropped marginally to 2.92 per cent in May 2010 from 3.36 per cent in December 2009. The consolidated deposit rates declined to 3.30 per cent in May 2010 from 6.13 per cent in December 2009. Thus, the spread between the average maximum lending rate and the consolidated deposit rate widened to 19.27 per cent in May 2010 from 17.34 per cent in December, 2009.


CBN noted that the key policy challenges remained the negative growth in money supply and private sector credit as well as the subsisting high lending rates in the face of declining inter-bank rates.On inter-bank lending, cost of borrowing among banks increased last week, across low and high tenored papers, with the low instruments increasing by much higher percentage points.NIBOR increased to 8.25 per cent on average last week from 2 per cent the previous week, attributed to outflow especially that created by the NNPC that withdrew about N100 billion from the system.


The secured Open Buy Back (OBB) climbed to about 7.50 per cent on the average from 1.50 per cent. Overnight and call rates both rose to 8.5 per cent from 2 per cent and 2.50 per cent respectively.One of the dealers said the rates will most likely go up this week because of the extremely tight liquidity in the system.It was gathered that the opening balance in the accounts of banks with the CBN dropped to N54 billion last Friday from about N230 billion a week ago due to huge outflows.


Forex Transactions

The market indicated last week the gradual resurgence in demand for dollars at the market while dollar supply from the oil majors was drying up. The development triggered low performance of the local currency.Traders said some oil majors sold about $29 million by midweek last week but that the sales were not significant enough to support the naira.


As already indicated, the local currency, which gained by 5 kobo  at the first in the bi-weekly auction last Monday when it traded N148.45/$1 as against N148.50/$1 previously, lost the 5 kobo at the second auction (last Wednesday) to exchange N148.50/$1. At the inter-bank market, the naira eased to N150.22 to the dollar from N149.70, which ended its two-week rally against the dollar. At the parallel market, traders exchanged N154/$1 as against N153/$1 at the beginning of last week.

The monetary authority sold only $150 million at the second of the bi-weekly auction last Wednesday, short of the $214 million demanded.


The CBN was reported to have made the lowest dollar sales in three months, at its auction last Monday. Banks bought the smallest amount of dollars in more than three months as demand from companies declined. CBN reportedly sold $117.1 million at the auction, the least since March 24, after putting $200 million on offer, the smallest available amount since the auction on March 29.


The foreign exchange market, according to the CBN remained relatively stable in the first half this year. During the period – January 1 to June 16, 2010, according to CBN data, total sales at 45 bi-weekly WDAS auctions amounted to $11,155.10 million, equivalent to an average of $247.89 million per auction. In the corresponding period of 2009, the sum of $12,995.48 million was sold at 70 daily and bi-weekly RDAS auctions, equivalent to an average of $185.65 million per auction.


The market regulator further stated that in May 2010, the average foreign exchange demand of $459.26 million per auction was recorded against the average sales of $394.45 million. As at June 23, 2010 average demand for the month dropped to $315.73 million and correspondingly, the average sales also declined, to $297.69 million, representing sales as a percentage of demand of 94.29.The CBN Governor, Sanusi Lamido Sanusi, told reporters last week that Nigeria is “comfortable” with current naira levels and believes the currency is unlikely to come under pressure, with foreign reserves capable of funding 16 months of imports.


Other Devts: Intervention fund

The CBN announced last week that N150billion out of the N500 billion intervention fund is ready for drawdown and will be accessed by 150 manufacturers before the end of this month.According to the Governor, the fund is targeted at deficit and strategic sectors of the economy. He however, noted that even though the power sector remains a key target, there have been no requests from that sector to access the fund, owing to the non conclusion of the power sector reforms.“So far, we’ve had about 150 companies that are going to borrow under the manufacturing tranche and that is about N150 billion” Sanusi said.



The apex bank also disclosed last week it was considering the Bangladesh model of microfinance for Nigeria. The CBN, said the Governor, will be sending a team to study the microfinance model in Bangladesh as it looks into the smooth operations of the lower segments of the financial sector.The Governor of the central bank of Bangladesh, Atiur Rahman, said Bangladesh authorities are  willing to share their experiences in that sector with Nigeria, stressing that the microfinance sector has helped Bangladesh improve its economy and cope with the global financial crisis.


Rahman disclosed that a different body from the central bank regulates microfinance in that country, adding that commercial banks in Bangladesh extend 40 per cent of their credit to the microfinance banks, who in turn channel the fund for on lending to the small and medium enterprises sector as well as agriculture.


D-8 Central Banks

The D-8 central banks from Nigeria, Bangladesh, Egypt, Indonesia, Iran, Malaysia, Pakistan and Turkey met in Abuja last week and expressed their commitments to collaborate on monetary and fiscal issues in the interest of the economies of member countries.


Sanusi said the meeting was necessitated by the role central banks play in national economies, stressing that it has become crucial to review and adopt common regulatory regimes to safeguard financial systems stability and prevent a repeat of recent experience of the global meltdown.


The Minister of Finance, Dr. Olusegun Aganga, said areas of co-operation by D-8 central banks as drawn up by the secretariat was important especially for trade facilitation, adding that as developing countries :“We owe ourselves the duty to promote trade among ourselves in order to grow our economy at a faster rate than North-South trade will ordinarily afford us.”






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