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MPR: Banks Raise Interest Rates on Existing Loans

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Bank customers with existing loan obligations must brace for higher levels of indebtedness as the Deposit Money Banks have begun an upward review of the interest rates on all outstanding loans.

The development followed Tuesday’s increase of the Monetary Policy Rate from 12 per cent to 14 per cent by the Central Bank of Nigeria’s Monetary Policy Committee.

Multiple banking sources told one of our correspondents on Thursday that the lenders would as early as next week begin to dispatch letters to their customers, informing them of the upward review of the interest rates on their loans.

“Banks don’t waste time on matters like this. The increase in the MPR means interest rates on loans have to go up. We have started writing letters to our customers. A few may go this week, while more will go next week. Customers will get the letters in emails and hard copy,” a top executive of a tier-1 bank told one of our correspondents under condition of anonymity on Thursday.

Other top bank officials, who confirmed the development, did not state the rate of increase in the interest rates on the outstanding loans.

They said the upward reviews of the rates were being done with keen consideration for certain conditions relating to each bank customer.

“What applies to customer A may not apply to customer B. We take keen look at each customer and their peculiar situation, including their loan history with us, before making the review. But the fact is that an increase is inevitable with the hike in the CBN’s MPR,” another top bank official said.

Banking experts say the MPR, often called the benchmark interest rate, is the yardstick for other interest rates bank charges on loans advanced to their customers.

The MPC had after its bi-monthly meeting on Tuesday increased the MPR from 12 per cent to 14 per cent. The measure was meant to reduce the amount of cash in circulation and thus fight inflation, which hit 16.5 per cent in June.

A financial analyst at BGL Plc, a research and investment advisory firm, Mr. Femi Ademola, said banks usually reviewed interest rates on loans whenever the CBN raised or lowered the MPR.

This, he said, was why banks usually included the clause: ‘Subject to prevailing interest rate’ on their offer letters for loans.

Officials said the latest review by the banks might move the interest rate on some loans from between 25 per cent and 27 per cent to around 30 per cent.

Ademola said while the banks would enjoy more interest income from the upward review, a small part of this amount would be paid to savings account customers as interest on their deposits.

In line with the CBN regulations, savings account customers are paid 30 per cent of the MPR as interest on their deposits. With the increase in the MPR, about 0.6 per cent of each customer’s savings account deposit will be credited to their account as accrued interest on their savings.

Analysts described this as negligible compared to what the banks would earn from the additional interest rate imposed on loans.

Meanwhile, manufacturers said the decision of the CBN to raise the MPR was a deadly blow to an already comatose manufacturing sector, adding that more sector operators were bound to close shops.

A local manufacturer of envelopes and Managing Director, FAE Limited, Princess Layo Okeowo, said, “I just pray that we do not all close our doors. The foreign exchange situation is already becoming unbearable with manufacturers having to wait for ages after bidding to get dollars. The increase in interest rate is a bitter pill to swallow and it has made an already bad situation worse.

“It is certain that the banks will readjust their interest rates even for people who have outstanding loans. It is certain that within the next one week, the banks will start writing letters to their debtors notifying them of increased interest rates on loans.

“Manufacturers will have to increase prices and already, the purchasing power is very low and the number of our customers has reduced drastically.”

An executive director in one of the leading aerosol firms in the country, Mr. Kingsley Oni, said because of the scarcity of dollars, his company had to lay off workers for the first time in its more than 20 years’ of existence.

Oni said, “We have over 2,000 workers; because we are not getting dollars, for the first time, we are retrenching. The point is, when they keep raising these interest rates, the impact on the manufacturing sector is very negative.

“The CBN cannot control inflation, but a situation where a country is in this situation and you still find a lot of private jets all over Abuja is what baffles me. One of those jets can be sold and the money ploughed back into the real sector to create jobs if the government is really serious.”

The Chairman, Qualitek Industries, Chief Olayinka Kufile, said although the CBN was trying to control inflation, the reality was that many industries in the country had become comatose.

He said, “Most activities in the manufacturing ector have been grounded. In the basic metal industry where I operate, everything is flat, because while we were trying to get out of the problem of the dollar increasing from N158 to a dollar to N200 to a dollar, we lost a lot of money. Before we could even get out of that, the dollar kept increasing and now it is more than N300 and the people who took loans at the exchange rate of N197 to a dollar are in heavy debts.

“If the government is hoping to earn money in taxes from the non-oil sector, they cannot get those taxes where companies are not producing and making money. Most industries today are not producing and they have reduced their staff strength to near zero.”

For the Director-General, Manufacturers Association of Nigeria, Mr. Remi Ogunmefun, within the concept of economics, the CBN was right to increase the benchmark rate in order to spur savings and investment as well as control inflation.

He said, “The implication of the increase for manufacturers is that the cost of borrowing will rise higher than it is already. It is quite unfortunate because over the years, we have been clamouring for a single digit interest rate.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Nigeria’s Public Debt Hits ₦121.67 Trillion as Borrowings Surge – DMO

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The Debt Management Office (DMO) of Nigeria has announced that the country’s total public debt has risen to ₦121.67 trillion ($91.46 billion) as of March 31, 2024.

This represents an increase of ₦24.33 trillion from the ₦97.34 trillion ($108.23 billion) recorded at the end of December 2023.

The surge in debt is attributed to both domestic and external borrowings by the Federal Government, the 36 state governments, and the Federal Capital Territory (FCT).

The DMO’s report reveals that Nigeria’s domestic debt now stands at ₦65.65 trillion ($46.29 billion), while the external debt is ₦56.02 trillion ($42.12 billion).

The DMO noted that the rapid increase in public debt is largely due to new borrowing to partially finance the 2024 Budget deficit and the securitization of a portion of the ₦7.3 trillion Ways and Means Advances at the Central Bank of Nigeria (CBN).

“The increase was from new borrowing to part-finance the 2024 Budget deficit and securitization of a portion of the ₦7.3 trillion Ways and Means Advances at the Central Bank of Nigeria,” the DMO stated.

Despite the rising debt, the DMO remains optimistic about future debt sustainability, contingent on improvements in government revenue.

“Whilst borrowing, as provided in the 2024 Appropriation Act, will continue, we expect improvements in the Government’s Revenue to enhance debt sustainability,” the DMO added.

The increase in debt comes at a time when President Bola Tinubu is preparing to present the 2024 Supplementary Budget to the National Assembly.

This follows the President’s approval of the ₦28.7 trillion 2024 Appropriation Bill on January 1, 2024, which was ₦1.2 trillion higher than the budget originally proposed in November 2023.

The 2024 budget, dubbed the “Budget of Renewed Hope,” set ambitious targets, including pegging the oil price at $77.96 per barrel and estimating daily oil production at 1.78 million barrels.

However, the naira has faced severe depreciation, plunging to nearly ₦2,000/$1 in February, before stabilizing around ₦1,500/$1.

Economic analysts warn that the escalating debt and currency depreciation could pose significant challenges to Nigeria’s economic stability.

The government’s ability to manage its borrowing and stimulate revenue generation will be critical in navigating these fiscal pressures.

As Nigeria grapples with these economic realities, the focus remains on finding sustainable solutions to manage the growing debt burden while fostering economic growth and stability.

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Banking Sector

Federal High Court Sets Date for Contempt Hearing in GTB vs. AFEX Loan Case

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The Federal High Court in Lagos has scheduled June 27, 2024, for the next hearing in the ongoing contempt suit filed by Guaranty Trust Bank Plc (GTB) against directors of AFEX Exchange Commodities Limited.

The case revolves around a disputed N17.81 billion loan obtained under the Central Bank of Nigeria’s Anchor Borrowers’ Programme.

Presiding over the court, Justice Chukwujekwu Aneke set the date following a session where arguments were presented by the plaintiff’s lead counsel, Mr. Ade Adedeji (SAN), and the respondent’s counsel, Prof. Olawoyin (SAN).

The core issue pertains to the alleged disobedience of a court order by the directors of AFEX Exchange Commodities Limited.

GTB, through its counsel Ajibola Aribisala (SAN), has accused AFEX and its directors—Ayodele Balogun, Jendayi Fraaser, Justin Topilow, Mobolaji Adeoye, and Koonal Ghandi—of contempt for failing to comply with a court directive.

The bank alleges that these directors did not appear in court as mandated, which led to the initiation of contempt proceedings.

During the latest session, Adedeji emphasized the necessity for the directors to appear in person, stating, “My lord, the parties in contempt are not in court. The contemnors cannot sit in the comfort of their homes and send a lawyer to court in contempt proceedings. The law is trite that they must appear before the court.”

In response, Olawoyin argued that he had only recently been briefed on the matter and was not fully aware of the prior developments.

He noted that some of the individuals listed as directors were no longer with the company, adding that one current director, Mr. Akinyinka, was present in court, while another was on pilgrimage.

The contempt case traces back to a suit marked FHC/L/CS/911/2024, where GTB sought to recover the loan amount through legal measures.

On May 27, Justice Aneke granted an interim Global Standing Instruction (GSI) injunction, which directs over 20 banks to transfer funds credited to AFEX into its account with GTB until the debt is settled.

Also, the court authorized GTB to take possession of AFEX’s 16 warehouses across seven states and sell the commodities stored within, as these were procured using the CBN’s loan facility.

The N17.81 billion loan comprises N15.77 billion in principal and interest outstanding as of April 17, 2024, and an additional N2.04 billion covering recovery costs and incidental expenses.

As the court prepares for the next hearing, the financial and legal communities are closely watching the proceedings.

The outcome will significantly impact not only the involved parties but also set a precedent for handling similar cases in the future.

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Banking Sector

CRC Credit Bureau Celebrates 15 Years with Record 14% Credit Penetration in Nigeria

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CRC Credit Bureau Limited celebrated its 15th anniversary with a record 14% credit penetration rate.

The occasion was marked with the CRC Finance and Credit Conference 2024 held in Lagos, where key industry stakeholders gathered to reflect on the bureau’s journey and discuss future trends in credit risk management.

Founded in January 2010 and licensed by the Central Bank of Nigeria (CBN), CRC Credit Bureau has played a pivotal role in enhancing access to credit across Nigeria.

Dr. Tunde Popoola, the Group Managing Director/CEO of CRC Credit Bureau Limited, highlighted the bureau’s journey, noting that from its inception with a single product, CRC has expanded its offerings to 18 products covering all aspects of the lending value chain.

Speaking at the conference, Dr. Popoola underscored the bureau’s contribution to Nigeria’s financial sector, stating, “CRC Credit Bureau has been instrumental in transforming access to credit in Nigeria over the past 15 years. We started with a vision to simplify credit access through reliable data and have since grown to serve millions of Nigerians.”

The event focused on the theme “Sustainable Financing Options: Innovations in Credit Risk Management,” emphasizing the importance of sustainable finance amid economic challenges.

The conference provided a platform for stakeholders to discuss strategies for mitigating risks and enhancing the efficiency of credit operations in Nigeria.

Reflecting on the current state of credit penetration, Dr. Popoola noted that while Nigeria has made significant progress, the 14% penetration rate still falls below global benchmarks.

He highlighted that CRC Credit Bureau currently holds credit scores for 33 million Nigerians, facilitating over 29.4 million searches in 2023 alone, with an additional 10 million searches conducted in the first quarter of 2024.

Joel Owoade, Chairman of CRC’s Board of Directors, acknowledged the economic headwinds impacting businesses in Nigeria but stressed the importance of sustainable financing to mitigate risks associated with lending.

“As we navigate economic fluctuations, sustainable financing remains crucial to fostering economic stability and growth,” Owoade remarked.

The conference also featured insights from industry experts on leveraging artificial intelligence (AI) in credit risk management and regulatory frameworks to support AI-driven innovations.

Olaniyi Yusuf, Managing Partner of Verraki, highlighted the potential of AI to create jobs and enhance economic productivity, calling for supportive regulatory environments that balance innovation with risk management.

Representatives from the Central Bank of Nigeria (CBN) emphasized the regulator’s efforts to promote sustainable credit practices.

Dr. Adetona Adedeji, Acting Director of the Banking Supervision Department at CBN, outlined initiatives such as the National Collateral Registry and Global Standing Instruction aimed at enhancing credit access while minimizing risks.

As CRC Credit Bureau looks ahead, Dr. Popoola expressed optimism about the future, stating, “We remain committed to driving greater financial inclusion and expanding credit access in Nigeria. Our focus is on leveraging technology and strategic partnerships to deliver innovative solutions that meet the evolving needs of consumers and lenders.”

The celebration of CRC Credit Bureau’s 15th anniversary underscored its pivotal role in Nigeria’s financial sector, marking a milestone in the nation’s journey towards broader financial inclusion and sustainable economic growth.

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