There are signs that banks are increasing their interest rate margin, presumably to lessen the effect that rising inflation is having on their profitability and operating expenses. This entails decreasing deposit rates and increasing lending rates.
As a result, bank customers now earn lower interest rates on their deposits and pay higher interest rates on loans.
The average maximum loan rate increased by 3.15 percentage points to 30.73 percent in February 2022 from 27.58 percent in December 2021, according to the Central Bank of Nigeria’s (CBN) most recent data on banks’ deposit and lending interest rates.
Similarly, from 11.68 percent in December to 11.78 percent in February, the average prime lending rate increased by 0.10 percentage points.
However, the average bank deposit rate dropped from 5.07 percent in December to 4.6% in February, a decrease of 0.47 percentage points.
Additionally, the data indicates that the average interest rate on a one-month deposit decreased from 3.73 percent in December to 3.46 percent in February, a decrease of 0.27 percentage points. Likewise, the average interest rate on three-month deposits decreased from 4.49 percent in December to 4.48 percent in February, a decrease of 0.46 percentage points.
Additionally, the average interest rate on 6-month deposits decreased from 4.82 percent in February to 4.56 percent, a decrease of 0.26 percentage points.
The 12-month deposit rate saw the biggest drop, with the average interest rate dropping by 0.95 percentage points from 6.79 percent in December to 5.84 percent in February.
The scenario, which shows a general increase in lending rates and a decrease in bank deposit rates, caused the interest margin of banks to increase by 3.15 percent.
The banks’ operating cost to income ratio, which increased by 4.9 percentage points in 2021, and the need to take action to stop this trend may be related to the interest margin growth.
The Banking System Stability Review Report, or BSSRR, was presented by CBN staff at the most recent meeting of the Monetary Policy Committee (MPC). It states that the impact of rising inflation and higher AMCON charges caused the operating cost to income ratio of banks to increase from 68.2 percent in 2020 to 73.1% in 2021.
This meant that, on average, banks spent N73.1 for every N100 in income in 2021, compared to N68.2 in 2020.
