At some point in time there may be a need for you to request for a loan or an overdraft from a bank. You may need to finance a purchase of goods for supplies, buy a car, pay for rent, finance a mortgage, fund a business etc. All of these require some fund of debt financing. When you obtain a loan from a bank it is common that you get amongst others, terms and conditions such as ‘Tenor”, ‘Security”, ‘Interest Rate”, “Fees” and “Other Conditions”. Some of us are so in a hurry to draw down on the loans we just sign up the offer letter containing the terms and conditions without even reading the fine prints. Subsequently, we cry foul when the banks start to hit our accounts with all sorts of obnoxious charges. So, just what should a bank charge you?
Interest Rates: In the CBN Circular of July 31, 2002 they had stipulated that Banks should not charge more that 400 (4%) basis points above the MRR (Minimum Rediscount Rate). The MRR was the rate that the CBN lent money to commercial banks. This instruction was reiterated in a circular issued on the 23 of April 2004. However, a circular issued on the 30 of April 2010 did not categorically refer to the maximum spread of 400 basis point. They replaced that by requiring banks to “quote lending rates as a fixed spread over Monetary Policy Rate (MPR) or any reference rate as may be determined by the CBN”. The MPR by the way replaced the MRR as the rate which the CBN lends money to the banks.
Currently, the MPR is 12%. So if a bank lends you money, they are now expected to quote the rate by stating clearly the spread. For example, MPR + 4% means you pay interest rate of 16%pa (per annum) with 4% being the spread. With this you can now track the following?
1. The interest rate a bank charges you against another bank. This is possible because their spread are all benchmarked against the same MPR.
2. Banks are typically fond of stating interest rates like this “interest rate of 16% subject to market conditions”. The market conditions they refer to is the MPR. So if MPR drops to 10% expect your interest to drop to 14%. If it doesn’t you can take that up with your bank.
Fees: In the same circular(s) the CBN mandated that “banks are henceforth required to note that aggregate flat lending fees shall not be more than 200 basis (2%pa) points of the facility amount. The details of all fees shall be communicated to and agreed with the borrower and disclosed by the bank”. What this means in essence is that total of fees such as ‘Facility Fees”, “Management Fees” etc. must not exceed 2%. For example, if your Facility Fee is 1%, Management Fee is 1% then they cannot charge you any other fee.
So even if you sign an offer letter from a bank for a loan that contains fees in excess of 2% today or even 5 years ago, you can ask the bank to repay all the excess charges that you have incurred. Several companies have taken advantage of this and have been compensated by the banks with the full over charge along with interest.
