Nigerian banks are holding back against a push by the central bank (CBN) to have lending rates lowered as a spur for cranking the economy back to life, according to investigations by BusinessDay.

Many business leaders in the country believe they and their businesses are suffering more from the high cost of borrowing than is the case with the FX rate and in response to this the apex bank has been in an easing mood lately but this is not translating into lower borrowing cost for the real sector of the economy.

But some bankers who spoke with Business Day last night said the high Monetary Policy Rate,(MPR) currently at 13 percent and cost of decayed infrastructure are part of the reasons that have kept lending rate as high as 30 percent, against two percent maximum on deposits.

“When you add the anchor rate with cost of salaries to staff, payment for diesels for 24 hours, there is no way lending rate will come down,” says chief executive of a tier two bank.

Bolade Agbola, executive director, cashcraft Asset Management Limited said, “Lending is a long term commitment by banks .It is the most risky and yet the most remunerative asset of banks .Short term liquidity splash in the economy will not stimulate lending because the key issues are customer capacity to repay and availability of suitable collateral to fall back to by banks in the event of default.”

Ecobank analysts said in their market report yesterday that “Market liquidity has grown steadily since late September, largely due to slowdown in CBN’s liquidity management via OMO. Increased market liquidity is driven by monthly fiscal appropriation (the sum of NGN389bn was shared among the three tiers of government on a ratio of 52.68: 26.72: 20.60).

The overnight rate traded 0.95% intraday and closed 1.00%. The open buy back (OBB) was 0.50%. The market liquidity remains strong and might continue to influence market direction.”

Uche Orji, managing director, Nigerian Sovereign Investment Authority (NSIA) sees the current high cost of naira as the biggest problem in the economy.

“One of the biggest economic issues Nigeria has to address is the cost of the naira, which is too high,” Orji said in an interview with BusinessDay.

Senior officials of the Central Bank believe that the banks are hedging; trying to hold out against cutting their lending rates for as long as is possible.

There have been subtle suggestions from the apex bank to the banks that rates should be climbing down now one bank CEO said.

“We are in a mood where we are easing but we feel frustrated that we are not getting the right signals from the banks,” a senior official of the Central Bank told BusinessDay.

Nigerian fixed income yields have fallen sharply across all maturities as liquidity surged on the interbank money market in recent months due to the central bank’s monetary easing.

Average yields on Nigerian sovereign bonds slid to 11.87 percent on Thursday Nov. 19 from an almost seven-month high of 16.32 percent on Sept. 9.

The secured open buy-back (OBB) – the rate at which lenders can borrow from the interbank market using treasury bills as collateral – crashed to 0.92 percent from as high as 7 percent in October, far below the central bank’s 13 percent benchmark interest rate,

Meanwhile Treasury bill yields ranged between 2 and 8 percent across the 1 month to 12 month maturities in the secondary market, data from the FMDQ show.

Our reporters learnt that the cut in CRR some weeks ago as well as the deliberate policy by the CBN to suspend OMO for several weeks were meant to signal to the banks that it was time for them to begin to cut rates.

“It’s somehow a tight operating environment for the banks,” Abiodun Keripe, head of research and strategy at Elixir Investment Partners, said in response to questions.

“On one hand, banks can be more innovative with offering customized or tailored solutions to customers which in turn can boost non-interest based income line. In addition, banks can increase their exposure (size) to the fixed income market, which can boost absolute profitability but not margins.”

Banks which have been used to hefty net interest margins (the difference between interest income generated and the amount of interest paid out to their depositors) appear to be struggling to adjust to the emerging regime of enhanced liquidity according to analysts.

Interest income made up about 70 percent of gross earnings in the nine months period to September 2015 for Nigeria’s five biggest banks.

‘‘Banks will have to find good companies to loan to and begin to move away from spread income,’’ Aurelien Mali, Senior Analytical advisor, Africa, Sovereign risk group for Moody’s, told BusinessDay.

Analysts say they expect the apex bank to further pile pressure on the banks when its monetary policy committee meets next on Monday (November 23) with a potential cut in the prime lending rate from the current 13 per cent.

Adesoji Solanke a banking analyst with Renaissance Capital tells BusinessDay that investors will be keenly watching the next MPC meeting of the central bank to get a sense of policy direction.

“It will be important is to see what the mpc decides at the next meeting so we have a clear idea as to whether we’re properly in quantitative easing mode and what the priority is – growth, inflation or exchange rate,” Solanke said.

I think most of the banks are seeing the currently low interest rates as temporary. I believe many banks are waiting for further convictions, such as a cut of the MPR by the CBN at the next MPC meeting, according to Tajudeen Ibrahim, equity research analyst with Chapel Hill Denham.

In our opinion, Nigerian DMBs are not holding back against lending rates, and we anticipate that they will adjust lending rates accordingly in accordance with prudential guidelines as appropriate, according to Saheed Bashir, team head Meristem Securities Limited, in an email response to questions.

http://businessdayonline.com/2015/11/banks-dither-on-cbns-push-for-lending-rate-cut/ lalasticlala, Seun