In a striking move to combat soaring inflation, the Central Bank of Nigeria’s Monetary Policy Committee has implemented a series of aggressive interest rate hikes, resulting in manufacturers repaying a staggering ₦1.595 trillion in loans and interest in the first half of 2024. This figure represents a dramatic 143.76% increase from the ₦654.27 billion repaid by 11 leading companies during the same period last year, according to a recent analysis by The PUNCH.
The substantial loan repayments reflect the challenging operating environment, marked by a benchmark interest rate that currently stands at 27.25%. This rate was raised again on Tuesday, marking the fifth increase this year, which has shocked financial markets. The latest hike represents a 50 basis point increase from the previous rate of 26.75%, continuing a trend of monetary tightening that began in May 2022 under the current leadership.
Governor Olayemi Cardoso of the Central Bank has reiterated the bank’s commitment to tightening monetary policy as a necessary measure against high inflation. However, financial analysts have raised concerns that the sustained increases in the Monetary Policy Rate are significantly raising financing costs for manufacturers, limiting their capacity for expansion and job creation.
Despite the burdens faced by manufacturers, the banking sector has benefited from these interest rate hikes. The combined net interest income of eight major Nigerian Deposit Money Banks surged by 163.19%, reaching ₦4.79 trillion in the first half of 2024, up from ₦1.82 trillion in the same period last year. This increase is attributed to a broader loan portfolio and higher yields on interest-bearing assets.
While the financial sector enjoys considerable profits, manufacturers are grappling with escalating interest rates and mounting debt repayments. As interest rates climb, banks are able to charge higher rates on variable-rate loans and new fixed-rate loans, thus increasing their interest income. Conversely, a decline in rates can expose banks to reduced interest income, creating a challenging landscape for financial institutions.
The situation is exacerbated for manufacturers, many of whom are experiencing declining sales due to diminished consumer purchasing power. An analysis of 11 leading manufacturers revealed that they collectively spent ₦1.595 trillion on loan repayments between January and June 2024, marking an increase of ₦940.62 billion from the previous year.
Prominent companies involved in these repayments include Dangote Cement, which topped the list with ₦708.26 billion in loan and interest repayments, a staggering 398% increase from ₦142.21 billion in H1 2023. BUA Foods followed closely with ₦319.18 billion in repayments, up from ₦28.61 billion in the previous year, while Nigerian Breweries Company spent ₦173.43 billion, slightly down from ₦189.72 billion in 2023.
Other notable repayments included ₦117.25 billion by BUA Cement, ₦104.4 billion by Notore Chemical Industries, and ₦98.65 billion by Nestle Nigeria. Unilever highlighted in its financial report that the high interest rates pose a significant risk to its operations, particularly through variable-rate bank overdrafts.
As manufacturers continue to tally their losses amidst rising operational costs and dwindling consumer spending, the impact of the Central Bank’s monetary policies remains a crucial issue for Nigeria’s economic landscape. The organized private sector has voiced concerns that the ongoing interest rate hikes could exacerbate the issue of non-performing loans within banks, further complicating the financial recovery of manufacturers.
