Following the Central Bank of Nigeria’s third consecutive increase in the benchmark interest rate, customers who borrowed money from the banks would start to see a spike in interest payments (CBN).
Following a two-day meeting of the Monetary Policy Committee (MPC) in Abuja on Tuesday, the CBN increased the monetary policy rate (MPR) by 150 basis points, from 24.75 percent in March 2023 to 26.25 percent now.
In reaction to the situation, a few commercial banks have taken their assets back.
GTCO decided to raise the interest rates on its credit facilities and sent a letter to its clients. According to the notice, the decision was made in reaction to the current state of the money market, which is characterized by an overall increase in interest rates.
The letter states that customers with existing MaxPlus loan facilities would be impacted by the modification, which will result in an increase in the current interest rate of 27 percent to 28.5 percent. The higher interest rate is scheduled to effect on June 5, 2024.
GTBank informed its clients of the impending modifications to their loan terms and conveyed gratitude for their ongoing business.
“The decision to review the interest rate on your facility upwards,” stated GTCO in writing. “This choice was made in light of the current state of the money market, which is marked by an overall increase in interest rates.”
As a result, the appropriate interest rate(s) on your lending facility or facilities have been reviewed and increased, as indicated below:
Facility Type: MaxPlus Current Interest Rate (percent): 27
New Interest Rate (%): 28.5 Date of Implementation: June 5, 2024
Rest assured that we will always be grateful for your valued patronage. We’ll keep you informed going forward.
The effect of CBN restrictions on bank interest rates was seen by Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, a pan-African credit rating organization. He asserts that there is a critical relationship between interest rates and the CBN’s Monetary Policy Rate. “It’s not like banks to raise interest payments,” he said. Banks are forced to hike interest rates when the CBN raises MPR because they have no other option.
“The loans are flexible interest rate loans for which the interest rate is not stagnant,” Olubunmi said, elaborating on the characteristics of bank loans and highlighting their adaptability. Even the writing is subject to macroeconomic circumstances.
“Banks are actually increasing interest payments because the MPC raised the MPR,” he said, attributing the recent interest rate adjustments to MPC decisions.
He noticed a pattern where banks shifted money to government securities because of their growing appeal in the face of rising interest rates.
“On the side of the customer, it also means the cost of borrowing is higher because you have a higher interest rate to pay,” Olubunmi stated regarding the effect on customers. Reluctance to accept bank loans will exist, and the amount of credit extended to the economy will decline. He emphasized the possible effects of higher interest rates on debtors as well as the economy’s total loan activity.
