ACCESS HOLDINGS, ETI, OTHERS SEE 52% INCREASE IN INTEREST EXPENSE AS CUSTOMERS’ DEPOSIT SOAR

Loan-to-Deposit (LDR) policy and interest payable by DMBs on deposits.

The vice president, Highcap Securities Limited, Mr. David Adnori attributed the growth to aggressive deposits from banks’ customers amid meeting CBN’s 65 per cent LDR policy and interest rate DMBs are paying for savings and term depositors.

According to him, “One major factor that triggered the increase of interest on deposit was growth recorded by DMBs in customers deposits.”

The President of the Association of the Capital Market Academics in Nigeria (ACMAN), Professor

Uche Uwaleke, had said hike in deposit rate is meant to attract deposits and let DMBs remain competitive.

“It is the competition that is pushing up interest on deposits in the banking sector,” he added.

In his reaction, Head, Financial institutions, Agusto & Co, Mr. Ayokunle Olubunmi said, “The growth recorded by banks on their interest expenses showed a reflection of what is happening in the economy, coupled with the rising inflation rate.

“Banks customers are asking for higher interest and for banks to keep those funds, they had to pay higher interest rate. Inflation rate has appreciated recently and prices of goods & services have increased significantly. If that is that case, it is not out of place for investors to ask for higher interest rate on their savings/term deposit they keep in the bank.”

He noted that demands by bank customers forced CBN to increase its Monetary Policy Rate (MPR) to 13 per cent in May from 11.5 per cent it was over two years.

The apex bank had reacted to rising inflation in Nigeria, which stands at 15.92 per cent as of Q1 2022.

The CBN’s action is consistent with those of the central banks of leading economies globally such as the US and the UK. The Federal Reserve increased interest rates in the US to 0.75per cent – one per cent, the highest in the past two decades.

Also, the Bank of England raised its interest rate for the fourth consecutive time since December to one per cent.

These actions are coming on the heels of rising prices of goods and energy globally.

Adnori added that, “Most of the times, when the CBN bank feels there is too much money in supply, it increases the interest rate to encourage people to save. Ideally, an increase in interest rate by the central bank should sound as good news to saving account holders or fixed deposit account holders. However, that is not the case for Nigerian savers.

“With an inflation rate of 15.92 per cent in Q1 2022, nothing much will come out from savings. Although it will raise the amount in interest bank savers currently get, it won’t do much in the real world as inflation eats up a sizeable chunk of savings.

“For fixed deposit holders, there is already a fixed rate of interest which does not change. However, for new fixed deposit accounts, the interest rate will be higher than what is previously available.”