Tony Chukwunyem Chairman, Board of Directors, Bank Directors Association of Nigeria (BDAN), Mustafa Chike-Obi, who is also Chairman of Fidelity Bank, and the Chief Executive Officer of The CFG Advisory, Adetilewa Adebajo, have warned that the wide interest rate spread( the difference between the interest rates charged on loans and the interest rates paid on deposits) in Nigeria is negatively affecting the country’s economic growth.
The financial experts, who stated this in an article they jointly wrote, noted that the issue of high-interest rate spreads, ” has been an area of concern since the Nigerian banking liberalisation regime.”
According to them, “the unusually wide spreads in comparison to regional and global banking institutions, suggests there are intrinsic and systemic inefficiencies within the Nigerian bank – ing system and distortions in the economy at large.
Stringent monetary policies and a tight regulatory regime also impact rate spread and invariably impact the economy.”
They disclosed that “in the past years, 2023-2025, interest rate spreads for Nigerian banks have on average increased and reached a record high from six per cent to 19 per cent.”
The experts explained that while “high spreads often indicate structural inefficiencies, higher risks, or restrictive monetary conditions which can hinder economic performance, low spreads reflect a well-functioning, competitive financial system that promotes growth and stability.”
They attributed highinterest rate spreads in Nigerian banks to factors such as, regulatory requirements, charges, taxes, the CBN’s tight monetary policy stance, the challenges banks face in accessing cheap funding and the high credit risk in the industry.
As they put it, “the CBN’s regulatory requirements, especially the high Cash Reserve Ratio (CRR) now at 50 per cent and the Liquidity Ratio, are impacting the interest rate spread and reducing funds available for lending.
The AMCON levy, NDIC premiums and the impending windfall tax are also included. Banks are charging higher interest rates on loans to compensate for the opportunity cost of holding reserves and passing on all these costs to customers via higher spreads.
