Banks’ average lending rate to Nigerian manufacturers, farmers and agro processors is 22.5 percent, according to the latest data compiled by the Manufacturers Association of Nigeria.
The rate fell by 0.5 percent when compared with 23 percent charged by banks in the second half of 2014.
This is considered high by analysts, who believe it is counter-productive and will limit investments in the real sector.
Nigeria’s real sector players want single-digit and long-term loans with which to broaden their businesses. But this is becoming difficult as many small- scale real sector players cannot access funds from most of the country’s banks.
“Any rate that is higher than five percent is not good for economic diversification,” said Dr Frank Jacobs, President of the Manufacturers Association of Nigeria (MAN).
“We want the interest rate to be between three and five percent. This is the only way can achieve economic diversification,” Dr Jacob said.
President Muhammadu Buhari-led government wants to diversify the Nigerian economy through agriculture, manufacturing and solid minerals.
But the Central Bank of Nigeria retains the Monetary Policy Rate at a single-digit rate of 11 percent. As banks’ interest rates are dependent on the Monetary Policy Rate, it remains to be seen if Africa’s biggest economy can ever have single-digit loans in banks.
In Thailand, manufacturers borrow loans from commercial banks at 6.9 percent interest rate, according to the World Bank data.
Lending rate in South Africa as at March 2014 was nine percent. The World Bank data also shows that lending rate in Iran remains 12 percent as at 2012.
Real sector players in the small- and medium-scale enterprise (SME) category have been the worst hit as they mostly fail to break even after bearing huge costs of Nigeria’s harsh business environment.
Mr Muda Yusuf, Director-General, Lagos Chamber of Commerce and Industry, said this has worsened the business environment in the country.
“Can you drive growth with high cost of funds?” Yusuf queried.
“The credit situation is bad. The majority of businesses we know complain of high cost of credit. Banks still give them conditions they cannot attain,” he added.