Nigerian Lenders Possibly Harmed By ‘Unpredictable’ Rules

The regulatory body for lending in Nigeria has posed “apparent contradictions on monetary policy,” Bloomberg reported. Analysts said that the unpredictability of the rules could have a negative impact on Nigerian lending companies.

This conflicting situation came after the county’s central bank forced lenders for months to increase the funds they allocate for credit activities. However, the regulatory body recently released a policy that can lead to an opposing result.

According to Bloomberg, Governor Godwin Emefiele increase the percentage that lenders need to deposit to the central bank by 500 basis points. This portion is not allowed to earn any interest.

With this surge in the amount required from lending companies, “the central bank is draining lenders of the funds they would typically use to create loans.” Today, these firms are required to deposit 27.5% to the regulator. This new percentage is considered the highest it has been in over four years.

Nigeria Lenders ‘Unpredictable’ Rules

American credit rating agency Fitch Ratings said that the central bank’s action intends to minimize the liquidity of the banking sector. Through this, the regulator hopes to hold back impending inflation.

Moreover, experts told Reuters that the country was at 11.98% inflation back in December. This indicates the fourth month of increase, which is aggravated by the closure of Nigerian borders due to smuggling.

Meanwhile, Reuters maintained the 13.5% interest rate. According to Emefiele, it is necessary to keep this rate “for sustainable support to growth before any possible adjustment.” This decision is consistent with analysts’ predictions.

As Africa’s strongest economy, Nigeria has recently come out of its first recession in 25 years. However, its economy remains delicate, leading to the central bank’s decision to stimulate it through lending.

A spokesperson for the bank said that the move was also taken as “this is not the right time to push for more credit.”