2008: Interest rates to maintain steady climb

Also, with major elections come and gone in 2007, there is not much likelihood that there will be unnecessary influx of capital into the system outside what the CBN can contain.

It is also expected that the other tiers of government will maintain a continuous fiscal discipline that will help keep liquidity tight this year.

Available data indicated mixed developments in banks' deposits and lending rates in October 2007.

But as at October 2007, with the exception of the six month and over 12-month savings rates which rose by 0.02 and 0.36 percentage points to 9.51 and 9.81 percent, respectively, all other rates on deposits of various maturities declined from a range of 6.12 - 10.43 percent in the preceding month to 5.27 - 9.97 percent.

Similarly, the average prime lending rate rose by 0.04 percent to 16.50 percent, while the maximum lending rate declined by 0.06 percentage points to 18.21 percent. Consequently, the spread between the weighted average deposit and maximum lending rates widened from 10.66 percentage points in the preceding month to 10.75 percentage points. The margin between the average savings deposit and maximum lending rates, however, narrowed from 15.22 percentage points in the preceding month to 14.82 percentage points.

Over the period, three months savings which rate stood at an average of 12.68 percent in 1999, rose to 14.79 percent in 2003. It however, started to decline at 12.8 percent in 2004 to 10.5 percent in 2006. Interest rate for prime lending stood at 21.3 percent in 1999, fell to 19.6 percent in 2003, 18.91 percent in 2004 and 17.33 percent in 2006.

The weighted average inter-bank call rate, which was 8.18 percent in the preceding month, rose to 8.25 percent in October 2007, reflecting the liquidity squeeze in the inter-bank funds market rise was attributable to the 4.1 percent increase in outstanding FGN bonds.

At the inter-bank funds market, the value of transactions was N2.34 trillion in 1,999 deals, representing an increase of 5.3 percent over the level recorded in the preceding month.

Analysis of the transactions show that activities at the open-buy-back (OBB) segment of the market were dominant at N1.71 trillion, representing 72.8 percent of the total. At the inter-bank segment, placements stood at N636.7 billion, compared with N573.2 billion in the preceding month.

Banks’ non-performing loan and assets

It is expected that the ratio of non-performing loans in the banking sector will reduce further this year, even as more banks are jostling to raise more capital from the primary market.

Indications are that, with increased capital base, came tighter regulatory measures, thus a sharp reduction in the level of non-performing loans. The ratio of non-performing loans to total loans given out reduced from 28.3 percent in 1999 to 8.8 percent in 2006.

It is expected that as banks continue to raise more funds, the tighter the regulation on them to protect investors' money. Also, as more banks raise money, experts say the total assets of banks may rise further. Banks' total assets rose from N1.18 trillion in 1999 to N6.74 trillion in 2006.

Total specified liquid assets of the Deposit Money Banks (DMBs) as at October 2007 was N2.84 trillion, representing 52.5 percent of their total current liabilities. This level of assets represented 1.5 percentage points over the preceding month's level and 12.5 per cent over the stipulated minimum ratio of 40.0 per cent for fiscal 2007.