The Nigerian mother-bank CBN has greeted all Nigerian deposit money banks with a new directive. On 1st September 2020, the Central Bank of Nigeria (CBN) instructed all banks in Nigeria not to negotiate interest on savings accounts below 1.25% of the deposit.
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As seen on the CBN official website, the excerpts of the circular addressed to “all banks” reads thus:
“The Central Bank of Nigeria (CBN) has 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 2019.
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.
This letter supersedes that of August 31, 2020, referenced BSD/DIR/GEN/LAB/ on the same subject.”
Well, this simply implies that no bank, by this directive, should offer its customers below the earmarked 10% of the Monetary Policy Rate (MPR). The current MPR is 12.5% – this is the rate at which the CBN lends to all banks nationwide. 10% of the current MPR (12.5%) is 1.25%. Thus, no bank should pay any of its clients lower than 1.25% of his savings deposit sitting with them.
Considering that the current inflation rate is a whopping 12.8%, customers continue to wallow in losses. If a customer earns 1.25% only to expend this in an economy with such an underwhelming inflation rate, he still has a deficit of about 11.55%. Customers are technically paying the banks, by extension – CBN, to keep their monies in the banks.