The Central Bank of Nigeria has slashed the rate payable on local currency savings deposits to 1.25 percent per annum, as it hailed declining market rates in the banking sector.
Interest rate on savings deposits is currently 3.75%, giving a cost-saving for the banks of 2.5%.
CBN said in a circular late Monday that it had “noted with satisfaction the recent declining trend in market rates in the banking sector following the implementation of policies aimed, amongst others, at stimulating credit flow to the real sector”.
“In line with recent market developments, the Bank has reviewed the minimum interest payable on savings deposits as provided in its Guide to Charges by Banks, other Financial and Non-Bank Financial Institutions issued in December 2020,” it explained in the circular signed by Bello Hassan, Director of Banking Supervision.
“Consequently, all deposit money banks are hereby informed that effective September 1, 2020, interest on local currency savings deposits shall be negotiable subject to a minimum of 10% per annum of Monetary Policy Rate,” it concluded.
With the MPR currently standing at 12.5%, the savings rate translates to 1.25% per annum.
On a monthly basis, this translates to 0.104%.
This is the rate that a customer will enjoy per month on a savings account but subject to the condition that the customer has not withdrawn more than three times from that account.
Commenting on these announcements, an analyst said it is a positive development for banks’ stocks, particularly the likes of FBN with a notable savings account portfolio of over a trillion.
“These 250bps savings on interest on savings account can potentially lead to some N15billion – N20billion savings in funding cost, which washes down to the bottom line to improve the bank’s profitability,” he said.
“Whilst this helps banks to reduce their cost of funds, it further undermines the savings appetite of Nigerians. Interestingly, the policy reinforces CBN’s position of stimulating real sector investment whilst discouraging perennial investment in financial assets, which creates limited economic value addition, given the relatively weak transmission mechanism of financial investments into real sector productive activities,” he concluded.
