By Dr Boniface Chizea
WED, SEPT 02 2020-theG&BJournal-The Department of Banking Supervision of the Central Bank of Nigeria (CBN) released a circular dated August 30, 2020 to all banks indicating a floor to interest rates on savings accounts effective from September 1, 2020 in keeping with its role of prescribing tariffs for operators in the banking sector.
This floor was given as not being less than 10% of the Monetary Policy Rate (MPR). The MPR as at today stands at 12.5% and therefore the indicative rate is therefore 1.25%. The circular celebrates the declining interest rates as in sync with drop in interest rates across market segments as due to recent CBN policies.
Yes, no doubt the recent policy of the CBN in prescribing Loan/deposit ratios which the banks are obliged to meet; failing which penalities are imposed including the warehousing of the amount of such deposits in default with the CBN interest free has made the banks relatively more aggressive in the booking of credit.
This is a salutary development as credit is now increasingly and readily available to the important economic sectors of Micro, Small and Medium scale enterprises so that the country could optimise the growth boosting potentials of the sectors not forgetting their impactful results as a source of sustainable job creation.
Having made this observation, it is difficult to rationalize a minimum savings deposit rate at 1.2% against the background of an inflation index of close to 13%! The smaller saver whose goal is to put some money away prioritising safety of deposits and therefore availability as at when desired might barely notice what is happening now.
But no corporate treasurer would place Deposits at such value erosion rate as value is lost due to the prevalent inflationary regime at over 10% per annum. Sometimes the consciousness of the imperatives of the stability of savings Deposits on economic growth are not readily shared. This is the source which enables banks to book tenured credit as Current Accounts are volatile as they are payable on demand and time deposits are the costliest source of funding for the banks. From where I stand, I have been asked but find it difficult to justify the essence of this circular.
It is true that in this pandemic era that there is the need to stimulate economic activities which is what I suppose all the special palliative funding at soft interest rates were targeted to achieve. Savings account holders are important at the end of the day for obvious reasons as have been canvassed here. It is therefore ill advised to inadvertently attempt to marginalize them. Also this circular gives a date in the future for circulars which it says have already been issued.