World Bank warns, low-interest loans from apex banks are hurting commercial banks

The World Bank has said that the Central Bank of Nigeria’s low-interest lending undermines commercial banks that lend on a risk-adjusted pricing basis and must be curtailed.

This was revealed by the World Bank in a document titled “Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual”.

The CBN has decided to maintain an annual interest rate of 5% for its development finance activities or intervention funds until March 2023.

This follows the decision of the monetary policy committee to raise the key monetary policy interest rates from 11.5% to 13%. This type of rate hike frequently results in higher lending rates across the board.

The World Bank said: “The CBN’s continued provision of heavily subsidized finance to certain sectors undermines commercial banks that lend on a risk-adjusted pricing basis and need to be curtailed.

The Bank said the CBN has not publicly assessed the impact of additional interventions as apex bank lending to the private sector increases.

The bank said: “CBN disbursements are increasing in private sector financing, with CBN’s share of private sector credit increasing from around 6.5% at the end of 2019 to 10% at the end of 2021. Although some of the COVID-related tools deployed by the CBN be phased out (for example, the moratorium on principal repayments of CBN-funded credits expired in March 2022), the Central Bank introduced new intervention facilities without publicly available assessment of their impact.”

The bank added, “The CBN also stepped up its disbursements and kept the policy rate unchanged at 11.5% from September 2020 to May 2022. On March 15, 2022, the CBN extended the interest rate by 5% per annum. on its development financing intervention. funds for one more year until the end of February 2023.”

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