CBN Cuts Interest Rate, Banks Still Yield Over 17%

The Central Bank of Nigeria (CBN) reduced its benchmark interest rate by 350 basis points in September, lowering the Monetary Policy Rate (MPR) from 26.5% to 23%. This adjustment raised concerns among bank investors regarding potential declines in interest income from loans and securities.

However, recent developments indicate that market yields remain elevated, with banks still earning over 17% on some CBN and government securities. The CBN's October 22 auction revealed that it sold N2.628 trillion in Open Market Operations (OMO) bills, surpassing its initial N2 trillion offer.

The 138-day bill cleared at 17.63%, and the 180-day instrument cleared at 17.14%, both rates higher than previous auctions. The CBN also maintained the Cash Reserve Requirement at 45%, while banks placed approximately N8.85 trillion at the Standing Deposit Facility, earning a 20% return.

This suggests that the anticipated decline in bank interest income may not materialize as quickly as expected.