CBN reduces minimum interest payable on savings deposits from 30% to 10% of MPR

Effective from today, September 1, 2020, the central bank of Nigeria has reduced the minimum interest payable on savings deposits by banks from 30% to 10% of the Monetary policy rate (MPR).

In a letter dated August 31, 2020 and addressed to all banks, the CBN said that its decision is based on the “declining trend in market rates in the banking sector following the implementation of policies aimed, amongst others, at stimulating credit flows to the real sector”

Consequently, the CBN directed all banks that effective September 1, 2020, minimum interest rates payable on local currency savings deposits shall be negotiable subject to a minimum of 10% per annum of the monetary policy rate.

Recall that in December of 2019, in a similar circular issued to banks, the CBN had reduced the interest rate payable by banks on savings deposits to a minimum of 30% per annum of the MPR.

The direct implication of this further reduction on savings rate is that interest accruing on savings deposits will fall, making savings unattractive to generality of the populace. It may also hamper savings mobilisation by banks, especially for microfinance banks who are already feeling the pinch of COVID-19 on their balance sheets.

The prevailing monetary policy rate (MPR) set by the CBN in July of 2020 is 12.5% per annum. Invariably, with this new directive, the minimum interest on savings is now 1.25% (10% of 12.5) per annum down by 2.5% from the previous 3.75% (30% of 12.5) per annum.

If a saver keeps N100,000 with a bank for an entire year or for 12 calendar months, he or she will earn a total of N1,250 as against N3,750 he would have earned under the previous interest rate regime, a loss of N2,500.

The new directive is being received with some misgivings within the banking community. Some microfinance banks feel that this will choke them further and make their business of deposit mobilisation a little more difficult and unattractive to a majority of micro clients who are their target clients.