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CBN Moves For Full Disclosure Of Banks' Interest Rates, Charges - Business - Nairaland

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CBN Moves For Full Disclosure Of Banks' Interest Rates, Charges by Nobody: 7:31am On Feb 09, 2009
CBN moves for full disclosure of banks' interest rates, charges
TO ensure transparency in the operations of banks in the country, the Central Bank of Nigeria (CBN) at the weekend published on its website the total interest rates and charges obtainable in each of the financial institutions.

The publication of the rates and charges for January 2009 was sequel to allegations by the banking public of hidden charges by the Nigerian banks.

The current edition as against the past ones contains the lending rate of every bank, including all charges, fees and commissions.

In a circular to all banks in the country signed by its Acting Director of Banking Supervision, D.A.N Eke, the apex bank reminded the financial institutions that with effect from January 2009, the monthly deposit and interest rates and charges published by the CBN will be inclusive of all charges, commissions and fees.

He added that the banks are required to annualize all their charges, commissions and fees and add them to their base lending rates to arrive at their all-inclusive average lending rates which they summit to the CBN for publication.

The statement also revealed that the CBN shall, with effect from January 2009, include the following footnotes to the monthly publication of banks' deposit and interest rates and charges:


The Central Bank of Nigeria publishes the average deposit and lending rates paid or charged by deposit money banks in Nigeria for the interest of the general public in order to promote transparency. The lending rates which include all charges, fees and commissions and the deposit rates represent the true rates at which the banks do business.

The CBN, therefore, warned that, banks are advised to comply with the requirements of this circular as non- compliance shall be sanctioned appropriately.
The hint on the new innovation in the CBN's publication was actually dropped by the CBN Governor, Prof. Chukwuma Soludo in Abuja recently, at the apex bank's seminar on "The Challenges of Ensuring Appropriate Inflation Rate, Exchange Rate and Interest Rate Regimes in Nigeria."

Soludo said that with the addition of all charges, fees and commissions in the lending rates, bank customers would be in a position to know when they are being ripped off.

According to him, those wanting to access loans from banks will find the CBN's publication a credible guide to knowing which of the financial institutions to approach. This will in turn prompt banks to take another look at their rates in order to attract customers.

Going by the banks' interest rates and charges on loans/deposits for January 2009, the average interest rate on deposits hovers between two per cent and 15.5 per cent.

Banks lending rates to the agricultural, mining and quarry, oil and gas, manufacturing, real estate and construction, general commodities, mortgage, transport and communication, financial institutions and government sectors of the economy attracted varying rates from bank to bank, according to the apex bank's publication.

However, a breakdown of these rates shows that prime lending rate to the agricultural sector ranges between four per cent to 24 per cent, while maximum lending rate to that particular sector is between 14 per cent and 32 per cent.

In banking parlance, prime lending rate is the one at which banks lend to its credit worthy customers.

In most cases, this rate is usually four per cent above the CBN anchor rate, the Monetary Policy Rate (MPR), which currently stands at 9.75 per cent.

The maximum lending rate, on the other hand, is the rate at which banks extend credit to perceived risky customers.

Banks usually extend credit facilities to this set of customers at a percentage rate above the MPR to the tune of about 10 per cent. Prime lending rate by banks to the mining and quarry sector, on the other hand, hovered between 13 per cent and 24 per cent, with maximum lending rates moving between 18 per cent and 32 per cent.

Banks' prime lending rate to the oil and gas sector stood at between 13 per cent and 24 per cent, with the maximum lending rate at between 18 per cent and 32 per cent.

The prime lending rate to the manufacturing sector of the economy stood at between 13 per cent and 24 per cent while the maximum lending rate hit between 18 and 32 per cent.

Interestingly, during the period under review, banks' prime lending rate to the real estate and construction segments hover between 13 per cent and 24 per cent, while the maximum lending rate from 18 per cent to 32 per cent.

Banks' prime lending rate to the general commodities segment hit between 13 per cent to 24 per cent, with maximum lending rate hovering between 18 per cent and 32 per cent.

Also, according to the CBN publication, banks prime lending rate to mortgage moved from 12 per cent to 24 per cent, with maximum lending rate hitting 18 per cent to 32 per cent.

The transport and communication segment attracted prime lending rate of 14 per cent to 24 per cent with maximum lending rate ranging from 18 per cent to 32 per cent.

CBN also revealed that banks' prime lending rate to government hovered between 14 per cent and 24 per cent, while the maximum lending rate moved between 19 per cent and 32 per cent.

It would be noted that the apex bank has had a running battle with banks over excess charges.

For instance, in 2004, the CBN, in a circular to all banks, had harped on the need to adhere to the agreed lending rate and other charges as provided in the guide to bank charges.

The requirement, then, was that banks should charge a maximum interest rate of four per cent above the Minimum Rediscount Rate (MRR).

The circular had warned: "Any bank that contravenes that particular requirement will refund the entire excess charges, plus interest thereon to the customers, in addition to other regulatory sanctions that will be imposed."

It further directed that, "in order to reduce banks' over-all cost of funding, particularly the overhead, banks are also advised to review their personal costs downwards to sustainable levels."

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