Why Banks Charge High Interest Rates On Loans—Emefiele

July 30, 2017
interest rate on loans

By Dipo Olowookere

Governor of Central Bank of Nigeria (CBN), Mr Godwin Emefiele, has explained why Deposit Money Banks (DMBs) in the country charge high interest rates on credit facilities to customers, which has been a source of worry for stakeholders.

It would be recalled that the recently, the Senate, also worried by this, called a stakeholders’ meeting in Abuja to address the issue.

On Saturday, July 22, 2017, while delivering a lecture entitled ‘The Dilemma of Monetary Policy and Exchange Rate Management in a Recession: Potential Options for Nigeria’ at the second Homecoming Series of the Economics Department of the University of Nigeria, Nsukka (UNN), Mr Emefiele gave reasons why commercial banks in the country charge high interest rates.

According to the CBN chief, the cost of operations of financial institutions makes it difficult for them to charge low interest rates on loans.

“Interest rates reflect not just the cost of capital but also the cost of doing business, and so we need to also look at interest rates from the perspective of the lender.

“Given that most banks have to individually provide security, power, and other infrastructure, it is not surprising that some of these costs are passed on to customers in the form of high interest rates,” the CBN Governor explained.

However, he assured that the CBN would continue to rely on moral suasion to encourage Deposit Money Banks in the country to be more considerate in interest charges on customers.

Mr Emefiele noted that the apex bank had been unjustly castigated for taking actions in the best interest of the economy.

According to him, with the inflation rate still hovering above 16 percent, the CBN would be failing in one of its key mandates if it cuts interest rates at this time.

He disagreed with argument of those pushing for a rate cut as a path to growth, noting that high inflation was inimical to economic growth.

The CBN Governor emphasised that the apex bank would not be deterred from its objective of setting the economy on the path of sustainable development in the medium to long-term.

At the moment, some banks charge above 18 percent as interest rate on loans and in some cases, others charge 26 percent.

This has made it very impossible for business owners, especially those in the Small and Medium-sized Enterprises (SMEs), to get the necessary funds to boost their businesses.

Dipo Olowookere

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.

Mr Olowookere can be reached via [email protected]

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