August 4 (Lagos) - There are reports that Banks are charging much higher rates for loans sometimes up to 30% even as the benchmark lending rate is 12.5% and this just shows how unrealistic the policies of the CBN have become over the past few years.
Even as inflation rose above the benchmark lending rate, the Monetary Policy Committee of the CBN chose to bury their heads in the ground and pretend like nothing happened.
Higher interest rates are required to support a currency. You cannot cut interest rates and expect your currency to remain at the same levels. When you devalue your currency like you are changing cars, then such destruction in economy is normal to expect.
How will the banks cope up with all the dynamics in the economy while CBN sets an artificially low benchmark lending rate. Something that is not sustainable and is causing more harm than good. The benchmark rate might become irrelevant if the CBN does not see the reality in the economy.
The report also questioned to banks on why they were charging such high interest rates on lending but paying low interest on savings.
The Naira continues to trade at 473 levels in the parallel market while investors wonder when the next devaluation will come from the might CBN after they discouraged Nigerians from investing in treasury bills but setting an artificially low rate and basically pushing people towards buying foreign currency and wait for next devaluation. CBN will be our hero's if they can cause a fall in the parallel market rate overnight and catch such forex hoarders in the act. For now they are losing the battle.
For bank stocks this report of higher interest rates is likely to support the prices at least in the short term as
GUARANTY ,
UBA , FHNH and
ZENITHBANK were very strong in yesterdays session.
reprorting for easykobo.com on Tuesday, August 4 2020 from Lagos, Nigeria