Home Finance Big banks snub depositors over interest rates

Big banks snub depositors over interest rates

by Business News Report

By Omoh Gabriel and Babajide Komolafe
Big banks which have met the CBN N25billion minimum capital base requirement have started to snob depositors over higher interest rate demand. The big banks are now refusing to accept deposit from customers as interest rates on treasury bills and other money market instruments are falling below deposit rates.
Giving insight into the unfolding scenario, the Managing Director of Allstates Trust Bank, Mr. Ebimomo M. TimiTimi said that big banks are no longer accepting deposit from customer because treasury bills rates are coming down. He said since most rates take their bearing from the Central Bank minimum re discount rate, MRR the money market he said is expecting that the minimum re discount rate of the apex bank will soon drop further. He said that lending rates will assume a maximum of 17 per cent given that 4 per cent spread is allowed above the minimum re discount rate. He said that banks are turning down deposit because they can not take deposit above the market cost of funds. He said that what is happening now will make banks undertake cost cutting to ensure that the cost of doing business is drastically reduced in order to remain profitable. He said that with N25billion minimum capital base banks operating in the country from December 2005 will have lots of funds and to ensure value for shareholders, such banks will have to put on thinking caps.
Mr Timi Timi said that the success of the offer being made by banks has shown the tremendous confidence the Nigeria public has on the banking system. He said that through the consolidation exercise a lot of money out side the banking system has been brought into the banking system. He also disclosed that a lot of money is coming from abroad which should help to refuel the economy.
He said that post consolidation will bring about internationalisation of Nigeria banks which will ensure best practice in the industry. According to him after consolidation Nigeria banks will move to real sector financing out side the current 90 days tenor of trade financing. He said in the future banks will canvass for customers to take loans in order to ensure shareholders value. In this respect he said that banks will in the future seek and finance venture capital.

It would be recalled that some weeks ago banks reduced interest rate on tenured deposits.
The big banks slashed deposit rates to 10 per cent from 14 per cent while other banks reduced deposit rate to 13 per cent from 17 per cent . The reduction was prompted by persistent decline in treasury bills rates and inter-bank interest rate as well as the reverse repo rate which was reduced by the Central Bank of Nigeria (CBN) three weeks ago.
A Treasurer in one of the banks explained to Vanguard that the interest rate development in the inter-bank money market makes it imperative for the big banks to be cautious about taking deposits at interest rates that disagrees with market realities. “Remember that this deposits will have to be reinvested either in treasury bills or through interbank placement. With interest rates on treasury bills between six and seven per cent and inter-bank interest rate below six per cent most of the time, there is no way we can make profit if we continue to accept deposit at interest rate above 10 per cent”, the source explained. The position of the big banks according to inter-bank sources is further informed by the general expectation of another downward review in the Minimum Rediscount Rate (MRR) by the CBN this month. In fact on speculations was rife that apex bank would announce the review on Friday.
File bigbanks 27/05/05

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