How CBN kept interest rate at 5% for 3yrs for interventions

The Central Bank of Nigeria (CBN) has extended the interest rate forbearance it grants to borrowers of some of its intervention funds by one year. The CBN charges 9% for the loans but reduced it to 5% when the pandemic struck in 2020. Regulatory forbearance is a widely adopted concept during an economic crunch and […]

The Central Bank of Nigeria (CBN) has extended the interest rate forbearance it grants to borrowers of some of its intervention funds by one year. The CBN charges 9% for the loans but reduced it to 5% when the pandemic struck in 2020.

Regulatory forbearance is a widely adopted concept during an economic crunch and it is meant to help stimulate businesses.

The apex bank had extended the rate cut by one year when it expired in March 2021. However, the central bank has extended the rate again for another year after it expired in the previous month.

This is contained in a circular to all banks and other financial institutions by the central bank titled, ‘Regulatory forbearance for the restructuring of credit facilities impacted by COVID-19.’

According to the circular, which was signed by the Director, Financial Policy and Regulation Department, Chibuzo A. Efobi, the extension takes effect from the 28th of February 2022.

The extension is following the announcement of the CBN during the last MPC communique reading that the non-performing loans ratio (NPLs) had dropped to 4.84% in February 2022 from 4.9% recorded in December 2021, which is the lowest recorded in a long time.

Notably, according to the MPC communique, while the NPL ratio dropped further, the liquidity ratio remained above its prudential limit of 43.5% as of February 2022, while Capital Adequacy Ratio (CAR) moderate slightly to 14.4% in the same period from 14.5% recorded in December 2021.

The recent extension by the CBN means that companies who secured intervention funds from the apex bank or through any of its on-lending banks will continue to service the loans at an interest rate of 5% per annum instead of 9%.