According to Nairametrics, below are the top 10 banks with the highest prime lending rates for manufacturing companies in Nigeria, as at March 8, 2024:
Titan Trust Bank: Prime rate – 23.00%; Maximum rate – 30.50%
Optimus Bank: Prime rate – 23.75%; Maximum rate – 35.00%.
Fidelity Bank: Prime rate – 24.00%; Maximum rate – 26.00%
Providus Bank: Prime rate – 25.00%; Maximum rate – 30.00%
Unity Bank: Prime rate – 26.00%; Maximum rate – 33.00%
Ecobank: Prime rate – 26.75%; Maximum rate – 35.00%
Heritage Bank: Prime rate – 27.00%; Maximum rate – 35.00%
United Bank for Africa (UBA): Prime rate – 28.50%; Maximum rate – 32.00%
Wema Bank: Prime rate – 30.50%; Maximum rate – 31.50%
Keystone Bank Ltd: Prime rate – 31.00%; Maximum rate -36.00%
Verdict: there is no manufacturing sector which could be globally competitive at these rates. Yet, you do not blame these banks. This is what drives those interest rates as provided by the Central Bank of Nigeria https://www.cbn.gov.ng/rates/mnymktind.asp
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A typical central bank does two main jobs – boost employment through interest rate management and stabilize national currency through the control of inflation. Nigeria’s consistent high rates are designed to manage inflation which remains stubbornly high, and as that happens, the other part of boosting employment is largely neglected.
Here, I make my point that we may need to try other things, and that could mean boosting Supply (i.e. manufacturing output) via lower rates, if we desire to improve employment and bring inflation down. At lower rates, companies have money to expand production, creating employment along the line.
If the Central Bank of Nigeria is afraid that it could create runaway inflation, I recommend a trial in Orendu Market in Ovim. Yes, make the rates 7% and watch how Supply will improve and within a cycle, we can forget this stubborn high inflation!
*The Prime Lending Rate (PLR) is the interest rate that commercial banks charge their most creditworthy customers for short-term loans. It serves as a benchmark for interest rates on a wide range of financial products, including variable-rate home loan, personal loans, and business loans.
Largely, Western economics textbooks will teach you to raise interest rates to control inflation because they have a decent credit economy. When you raise rates, among many things, you make the cost of borrowing higher, and that can affect consumer spending since credit card rates will move up. If you can depress demand through suppressing consumer spending via high interest rates, you have a good chance of controlling inflation.
But in Nigeria with limited consumer credit, that does not make a lot of sense. In other words, when you increase interest rates, you are not clearly influencing demand since access to credit is limited. Rather, what happens is that when rates go up, companies struggle because the cost of capital is increased, and if that is the case, they do not invest a lot, and that triggers lower supply. With lower supply, inflation jumps up again. That is why for years, inflation has continued to worsen in Nigeria despite our consistent increase in rates.
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We have been stuck in this high interest rate quagmire for too long, and what has it fetched us? It’s not clear, naira lost value greatly, and inflation is facing the sky. Why are we still convinced that nothing else can be done? Which country ever built a thriving manufacturing sector with double digits rate, let alone the ones above 20 percent?
We may think we are trying or doing a whole lot, but it’s obvious that we are not thinking hard and deeply enough. For every N100 million, you are paying rates averaging N25 million to N35 million, and you are expected to remain in business, pay good wages, plus the extortions? We are too strange here to be real.
Next we create ‘Bank of Manufacturing’, with a capital base incapable of funding a medium industry. We seem to carry small brains in big bodies here.