Nigerian banks are likely to face more challenges as the nation’s benchmark interest rate continues to rise, global credit rating agency, Fitch Ratings, has said.

The Central bank of Nigeria’s Monetary Policy Committee had on Tuesday increased the interest rate from 12 per cent to 14 per cent in a move to curb inflation and strengthen the naira. The move has been widely criticised by economists.

The CBN’s Monetary Policy Rate (benchmark interest rate), which hovered around six per cent from 2001 to 2011, has risen steeply.

In a statement on Friday, Fitch said, “Rising rates are likely to put additional pressure on banks’ asset quality. Almost all lending is extended at floating rates and banks should be able to reprice their loans quite quickly but borrowers will face more difficulties in servicing their debts.

“Impaired loans are already high in the Nigerian banking sector, where average non-performing loan ratios reached 6.2 per cent at end-March 2016, partly reflecting the impact of currency depreciation on businesses as well as higher oil-related problem loans at some banks.”

Fitch expects loan growth (excluding foreign-exchange translation effects) to slow during the second half of 2016 and into 2017.

Banks have already tightened underwriting standards as economic conditions in the country worsen.

The nation’s Gross Domestic Product contracted by 0.4 per cent year-on-year in the first quarter of 2016 and Fitch forecasts the GDP growth to fall to 1.5 per cent in 2016.

CBN didn't fail to lure local and foreign investors, uncertain global economic outlook after the U.K exit the European Union and unfavorable business environment in Nigeria forced both foreign and local investors to hold back.

So, it will be totally wrong to hike rates in order to attract investors when our consumer spending is weak and consumer price index (Inflation) is at 11 year high. If we need to create jobs to boast spending by stimulating the economy domestically. It will be wrong to raise rate today, because even if they do it won't be effective. And I think MPC are smarter than that.

How does this make sense to you? You are giving investors money without considering real economic growth, what about 25 year high unemployment rate? So is better not to create jobs and give money to oyinbo wey no send you.

Even US that is the most appreciated economy this year, held rate unchanged immediately Britain exit the EU. Global risks and current uncertainty will continue to weigh on growth, especially emerging economies. Why is Japan, third largest economy, UK, New Zealand etc cutting rates to aid growth and Nigeria increasing rates.

The same way they refuse to float naira until last minute.

sapiosexual1:
You guys should not just talk, if you're concerned Nigeria may go the Zimbabwe way, pls erect megaphones at Aso rock and shout it into our Deaf President and his trial-and-error economic team's ears

Truth234:
My post before interest rates was increased



After interest rates was increased




My new post, 20 percent inflation rate in this third quarter.

shawn5ng:
We can't keep on blaming the govt at all time when some ppl are financing book haram, Niger Delta Militant, cattle hernsmen, National Assembly in disarray and lotting the nation. All these are distraction to this govt. Revenue has dropped drastically and the little money available is use to fight all these distractions listed above. No one will ever invest in an unconductive environment. So the ppl should hold their leaders responsible rather than supporting them when they are being caught shortchanging the common wealth of us all. Let's speak out and fight all these things now before it is too late.

shawn5ng:
We can't keep on blaming the govt at all time when some ppl are financing book haram, Niger Delta Militant, cattle hernsmen, National Assembly in disarray and lotting the nation. All these are distraction to this govt. Revenue has dropped drastically and the little money available is use to fight all these distractions listed above. No one will ever invest in an unconductive environment. So the ppl should hold their leaders responsible rather than supporting them when they are being caught shortchanging the common wealth of us all. Let's speak out and fight all these things now before it is too late.

27naira:


I was impressed when I read your analysis.. just yesterday, Bank of Japan unfolded certain economic stimulus package which includes ETF buyback programmes and increased USD swaps but guess what, analysts say that wasn't enough! They expected more rate cuts into the negative territory and an increase in the Monetary Base. BOJ wanted to curtail the rising value of the Yen which is hurting export. They wanted their money to depreciate! We need to drive foreign capital and ordinarily increasing Base rate should have worked but not any more. Investors want to see stability, they want to know their money is safe! That's why after Brexit, German bonds yield moved into negative territory because people were looking for security and not yield. We want our Government to come up with a policy frame work that works and stop peddling rates. As a matter of fact, government need to cut rates! And probably increase provision for USD swaps and borrow from IMF