Global banking group, United Bank for Africa (UBA), says it will increase its lending rate to protect its profit margins.
According to a report by Bloomberg, the hike may be as much as 400 basis points.
Chief Executive officer of the bank, Oliver Alawuba, who disclosed this in Lagos stated that such action will continue as long as “the economic headwinds are still strong and the cost of funds is increasing”.
The lending rate increase will affect all corporate, commercial and personal banking credits, Mr Alawuba was quoted to have said.
UBA plans to increase its loan book by 10% this year while keeping non-performing loans at not more than 4% of total credits.
The new rates will put further pressure on Nigerian companies, which already face some of the highest lending costs in Africa.
While UBA doesn’t publish its interest rates, the average rate for Nigerian bank loans was 12.1% for top-rated corporate borrowers in July, while riskier borrowers paid 27.6%, according to the latest data on the Central Bank of Nigeria’s website.
Annual inflation in Africa’s biggest economy quickened to 19.6% in July, the highest rate in about 17 years, and more than twice the 9% target set by the Nigerian central bank. That compelled the monetary policy committee to raise its benchmark interest rate by 100 basis points to 14% in July, following a 150 basis-point hike in May.
UBA’s costs as a proportion of income rose to 63.2% in the first half, from 62.3% a year ago, fueled by a 22% jump in operating expenses. Lending margins at 5.7% in June were below its set target of 6% for this year. Measures will be taken to “defend the margin,” Alawuba said.
