Nigerian Bank to Hike Lending Rates on Rising Costs

United Bank for Africa Plc, a Nigerian lender with operations in 20 African countries plans an increase in lending rates by up to 400 basis points to protect erosion of its profit margins by rising costs of operations in its home market.

The repricing of loans will affect all corporate, commercial and personal banking credits, CEO Oliver Alawuba said at an investor call in Lagos, the nation’s commercial capital. “That will continue as long as the economic headwinds are still strong and the cost of fund is increasing,” he said.

The new rates will put further pressure on Nigerian companies which already face some of the highest lending costs on the continent. While UBA does not publish its lending 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 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 in about 17 years, and more than twice the 9% target set by its central bank. This compelled Nigeria’s top banking regulator to raise its benchmark interest rate to 14% in July after an earlier hike in May.

The Lagos-based lender’s costs as proportion of income rose to 63.2% in the first half from 62.3% a year ago, while lending margins shrunk to 5.7% in June, below its set target of 6% for this year. Measures will be taken to “defend the margin,” Alawuba said.

Source: Bloomberg