In order to maintain its profit margins, United Bank for Africa Plc, a Nigerian lender with operations in 20 African nations, intends to raise lending rates by as much as 400 basis points.
On an investor call in Lagos, the nation’s commercial hub, Chief Executive Officer Oliver Alawuba stated that the repricing of loans will impact all corporate, commercial, and personal banking credits. He added that this will continue as long as the economy is still experiencing significant headwinds and funding costs are rising.
This year, UBA wants to add 10% additional loans to its loan book while limiting the percentage of non-performing loans to no more than 4% of total credits.
Nigerian businesses, already under pressure from some of the highest loan charges on the continent, would feel the additional pressure from the increased rates. Despite the fact that UBA doesn’t disclose its interest rates, the Central Bank of Nigeria’s website shows that in July, the average interest rate for corporate borrowers with the highest ratings paid 12.1%, while borrowers with lower ratings paid 27.6%.
The largest economy in Africa saw annual inflation accelerate to 19.6% in July, the highest level in about 17 years and more than double the 9% target set by the Nigerian central bank. Thus, following a 150 basis-point increase in May, the monetary policy committee was forced to increase its benchmark interest rate by 100 basis points to 14% in July.
In the first half, the Lagos-based UBA’s costs as a percentage of income increased to 63.2% from 62.3% a year earlier, driven by a 22% increase in operating costs. With lending margins at 5.7% in June, they fell short of the 6% goal they had set for this year.
Measures will be taken to “defend the margin,” Alawuba said.