Bank charges, especially interest rates always anchor the Monetary Policy Rate (MPR).
Wikipedia defines Monetary policy “as the process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency”.
“Government in a bid to regulate the affairs of the economy would always use MPR as one of its instruments; which is an interest rate at which CBN lends to commercial banks and other clients” www.ajol.info
MPR which is currently at 14%, is the rate at which banks gets loanable funds from CBN, thus interest rate at which bank lends to customers will mirror MPR.
Below is a guide to what your bank charges should look like.
1. Interest (Bank charges) on Naira Loans
This is negotiable and should reflect risk based pricing model (The higher the risk inherent in the loan the higher the interest rate). Customers must however be notified of a change in interest rate 10 business day before it is implemented.
- Mortgage – Maximum of MPR plus 5%, that is 19% (Negotiable)
- Term Loan – Negotiable, it should reflect risk based pricing model
- Authorized Overdraft – Negotiable, it should reflect risk based pricing model
- Unauthorized Overdraft – Not permissible, except as a result of facility repayment. Penal rate of 1% flat per month is charged on unpaid amount in addition to interest on loan.
- Drawing Against Uncleared Effect – Negotiable, it should reflect risk based pricing model.
- Equipment Leasing – Negotiable, it should reflect risk based pricing model.
- Discountable Instrument (Usuance, Bills, Banker Acceptance, Commercial Papers, Promisory Notes etc) – Negotiable
2. Foreign Currency Loan – Bank charges, Interest rates and fees on Foreign currency loan is negotiable
3. Lending Fees – Maximum of 2% is allowed
- Management Fee – maximum of 1% (one off)
- Commitment Fee – maximum of 1% (one off)
- Facility Extension Fee – maximum of 1% (one off)
- Restructuring Fee – maximum of 0.5% of total restructured amount.
4. Bank charges on Consortium Lending
- Agency Fee – Negotiable
- Management Fee – Maximum of 1% (one off)
- Commitment/Non drawing Fee – Negotiable, subject to maximum of 0.5% of undisbursed amount (one off).
- Commission on Underwriting – Negotiable
5. Commission on Bond Guarantee and Indemnity
- Bid Bond/ Tender and Bid Security – Maximum of 1% of bond value (one off)
- Performance Bond/
- Advance Payment Guarantee – Maximum of 1% of Bond or guarantee value ( chargeable on date of contingent liability).
- Bank Guarantee – Maximum of 1% of bond value (one off).
- Other Bonds, Guarantee and Indemnity – Maximum of 1% of bond value (one off)