CBN’s 22.75% Interest Rate Hike Sparks Fears of Increased Non-performing Loans – Experts

Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso

CBN’s Interest Rate Hike Raises Concerns of Growing Non-Performing Loans – Financial Analysts Warn.


Financial analysts are expressing apprehensions over the recent decision by the Central Bank of Nigeria (CBN) to raise the interest rate by 22.75%, citing potential implications on loan performance and overall financial stability.

In a discussion with Nairametrics, these experts shed light on the adverse effects of the heightened monetary policy rate (MPR) on existing bank loans. They cautioned that this move could prompt banks to adjust loan pricing, exacerbating levels of non-performing loans (NPLs) and adding pressure on financial stability indicators.

Significant Increase in Monetary Policy Rate The CBN recently implemented a substantial 400 basis points increase in the monetary policy rate (MPR), setting it at a historic 22.75%. This marks the highest MPR level recorded in the country, surpassing the previous rate of 18.75%, which had been maintained since the last Monetary Policy Committee (MPC) meeting in July 2023. Additionally, the CBN raised the Cash Reserve Ratio to 45%, while keeping the liquidity ratio unchanged at 30%. Adjustments were also made to the Asymmetric Corridor, with the upper limit raised to +200 and the lower limit to -700.

Insights from Market Experts: Mr. Mike Eze, Managing Director of Crane Securities Limited, acknowledged potential short-term benefits for the banking sector due to higher interest rates, leading to windfall gains for some institutions. However, he warned about the looming challenges for businesses in meeting loan obligations, potentially resulting in increased NPLs.

Expressing skepticism about the effectiveness of the CBN’s hawkish monetary stance in combating inflation, Mr. Eze cited various contributing factors such as insecurity affecting food production, currency depreciation, and rising costs of energy inputs. He emphasized the need for addressing underlying causes rather than solely relying on interest rate hikes.

ALSO READ: FMDQ Traders introduce cap bid/offer spread to N50 in new forex trading changes

Professor Uche Uwaleke, Director of the Institute of Capital Market Studies at Nasarawa State University Keffi, criticized the sharp 400 basis points increase in MPR as excessive. He highlighted concerns about the impact on the real sectors of the economy, including limited resources for lending and increased costs for firms and government debt service.

Anticipated repercussions, according to Uwaleke, include banks adjusting loan pricing, potentially worsening NPL levels and straining financial stability. He warned of potential economic contraction, particularly affecting GDP figures in agricultural and industrial sectors, with ripple effects on the stock market and employment levels.

Mr. Olatunde Amolegbe, Managing Director of Arthur Steven Asset Management Limited, viewed the interest rate hike as a strategy to address inflationary pressures. He anticipated positive outcomes such as increased foreign exchange inflows and stability in the FX market. However, he cautioned about elevated borrowing costs for corporations and potential upticks in loan defaults and NPLs for banks.

Amolegbe also predicted a price correction in the equities market as investors shift towards the fixed income market in response to the tightening monetary policy stance.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.