Why Interest Rate On Bank Loans Would Increase, Affect Local Production

By Tolulope Oke

According to the vice president, Highcap Securities Limited, Mr. David Adnori, the interest rate on bank loans will keep increasing due to the fixed 14 percent Monetary Policy interest rate induced by the Central Bank of Nigeria (CBN).

The (CBN) through its Monetary Policy Committee (MPC) had raised its interest rate by 100 basis points, indicating an increase to 14 per cent in July.

CBN’s governor, Godwin Emefiele had stated that the reason for the decision to hike the interest rate was due to concerns about the growing inflation in the country which had increased to 18.6% as of June.

Adnori spoke in an interview with THISDAY, explained that customers are only able to obtain loans at a rate higher than the prime rate mostly because they are more likely to default on a loan.

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He said, “an increase in the MPR by the MPC will result in an increase in the price (interest rate) you pay for borrowing and vice versa. Banks responded to this hike by jacking up their lending rate as well. The consequence of this is that borrowers would have to pay more when they borrow from the bank.”

He noted that the recent MPC decision to maintain the MPR at 14% implies that companies seeking bank loans to fuel their operations would only be able to obtain loan facilities from banks at rates above 14%.

“That is, the cost of borrowing would still remain on the high side. At MPR as high as 14per cent, businesses would continue to face high cost of borrowing and limited fund for local production,” he said.