Ok, I don’t like to sound like a smug every time I talk about interest rates but here is the truth; some guys are out to rip us off our guts whether or not MPR is high or low or whether interbank rates fall or rise. Now check this out;
Source: CBN Click in to expand
The chart above is indicative of an exploitative regime. How do banks lend at 18-23% % when Interbank rates are 2.6% as reflected in Q1 2010? Ok deposit rates were 8.7% so a margin of 10-12%, right? Wrong!. Fast forward Q4 2010, average deposit rates and interbank rates 4.4% and 15.9% respectively and yet lending rates is between 15.7%-21.9%. So while you expect lending rates to go up despite rise in deposit and interbank rates it just drops. Same trend is seen in pretty much all the quarters leading to Q2 2012. The spread between deposits and maximum lending rates are as follows;
What this basically reveals is the huge disparity between lending and deposit rates. As at 2012 Banks have real interest rates (Lending rates less inflation rates) i excess of 12% (a good cushion against inflation) whilst depositors have real interest rate spreads of about (Deposit rates less inflation rates) -8%(negative). The CBN on the other hand lends to the banks at slightly over 12%. How come banks get to make up for inflation by charging higher lending rates and depositors cannot get anything higher? In fact savings deposit rates in Nigeria is much lower than 4% a more dismal position. The top 5 banks all reported massive increase in interest income and profits whilst most Nigerians and manufacturing companies wallow in debts and dismal returns on investments. The banks consistently use the excuse of inflation rates and CBN’s misguided policy of monetary policy tightening to rip depositors and lenders off their hard-earned money. No wonder most of them can afford to own yachts, luxury cars and mansions.
Like 2pac says, “keep your mind on your riches”.