Nigeria’s real estate sector remains a critical part of the economy, and securing favourable lending rates is paramount for developers and investors.

Banks offer various lending rates tailored to the needs of real estate businesses. Borrowers should consider both prime and max lending rates, along with their specific financial circumstances, to choose the best banking partner for their real estate investments.

The prime rate indicates the best possible rate offered to the most creditworthy customers, while the maximum rate suggests the upper limit of interest rates for loans provided to the sector, which might apply to higher-risk scenarios or different loan structures.

As of May 10, 2024, here are the top 10 banks with the lowest prime lending rates for real estate businesses in Nigeria. The categorization is based on the CBN’s weekly interest rates data.

10. Access Bank

Access Bank offers a prime lending rate of 22%, which is the highest among the top 10. However, the maximum lending rate of 28.5% indicates some flexibility in loan agreements, which could lead to higher borrowing costs for riskier clients.

9. Globus Bank Ltd

With a prime lending rate of 21.41%, Globus Bank Ltd provides competitive initial rates. The max lending rate mirrors that of Access Bank, suggesting a similar risk premium structure for real estate loans.

8. Stanbic IBTC

Stanbic IBTC offers a prime rate of 20.5%. However, with a significant max lending rate of 38.4%, borrowers should be cautious of potential rate hikes due to varying credit risks or market conditions.

7. Guaranty Trust Bank

Guaranty Trust Bank’s lending rates are fixed, with both prime and max rates at 20%. This consistency can benefit borrowers seeking predictability in their financing costs.

6. Greenwich Merchant Bank

Offering a prime rate of 20%, Greenwich Merchant Bank has a slightly higher max rate at 25%, providing some room for rate adjustments based on borrower risk profiles.

5. Union Bank

Union Bank’s prime lending rate is competitive at 19.65%, but the high max rate of 33% could lead to substantial increases depending on loan conditions and borrower creditworthiness.

4. Citibank

Citibank’s 19.5% prime rate is favourable, though the max rate of 29% suggests potential variability and higher costs for borrowers with lower credit ratings or higher perceived risks.

3. Standard Chartered Bank

With a prime rate of 19%, Standard Chartered Bank offers attractive lending rates, with the max rate capped at 26%, providing a balance between affordability and risk management.

2. Nova Merchant Bank

Nova Merchant Bank offers a significantly lower prime rate of 12%, making it one of the most affordable options for real estate lending. The max rate of 20% ensures that even in riskier scenarios, borrowing costs remain relatively controlled.

1. SunTrust Bank

SunTrust Bank leads with the lowest prime lending rate of 7%, making it the most cost-effective choice for real estate businesses. The max rate of 10% further underscores its affordability, appealing to a wide range of borrowers seeking competitive financing terms.

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Professor Ayo Omotayo, the Director-General of NIPSS, made this call during a visit to the CBN by participants of the institute’s Senior Executive Course Programme, Study Group 6.

“We at NIPSS believe that we can achieve 12 percent growth of our economy, GDP growth, year in and year out for the next five years if we are serious about it. If it’s going to work, the CBN is very critical in ensuring that it works.

A whole lot of what is going to happen in Nigeria in the next five years depends on how successful CBN drives everything,” Omotayo said.

He emphasized the importance of digitalization in driving financial inclusion, highlighting the need for almost every service to be delivered digitally, including healthcare.

Omotayo presented a scenario where medicine purchases could be linked to a user’s phone and pharmacology delivered electronically.

READ ALSO: CBN Bans Foreign Currency Collateral For Naira Loans

In response, the CBN Governor, Yemi Cardoso, represented by the Deputy Governor of Corporate Services Dr. Bala M. Bello, acknowledged Nigeria’s rapidly evolving digital landscape.

Cardoso reiterated the CBN’s commitment to leveraging digital technologies for financial inclusion, productivity growth, and fostering an environment for innovation and entrepreneurship.

READ ALSO: CBN’s Recapitalization May Lead to Closure, Acquisition of 11 Banks

He assured NIPSS members that the CBN is committed to harnessing the power of digital technologies to enhance financial inclusion, boost productivity, and create an enabling environment for innovation and entrepreneurship to thrive.

This collaboration between NIPSS and the CBN could potentially drive significant economic growth and development in Nigeria, particularly through the digitalization of key services and sectors.

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However, the CBN’s decision to exclude retained earnings from the share capital calculation has sparked criticism from bankers.

Retained earnings, which represent profits not distributed as dividends but reinvested in the bank, are traditionally considered a component of a company’s equity. Many bankers argue that excluding retained earnings from share capital calculations fails to acknowledge their true value and goes against conventional accounting principles.

READ ALSO: CBN Raises Minimum Capital Requirements for Banks

Despite the CBN’s preference for banks to retain earnings to bolster their capital base, bankers believe these earnings should still be recognized as part of their capital. They point out that the ten largest banks in Nigeria collectively hold N4.2 trillion in retained earnings, and excluding these from share capital calculations could lead to unnecessary capital raising for many banks.

The CBN’s directive appears to prioritize direct capital injections into banks over recognizing retained earnings as part of share capital. While the CBN has allowed for mergers and acquisitions to meet the new capital requirements, bankers remain dissatisfied, suggesting that some banks may struggle to comply with the new guidelines.

The CBN has defended its stance, stating that stronger banks with substantial capital bases are crucial for providing significant levels of credit, which is essential for driving national economic growth. This move aligns with the CBN’s goal of supporting the achievement of a US$1 trillion economy by 2030, in line with the Renewed Hope agenda of the Tinubu administration.

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CBN’s Acting Director Corporate Communications Mrs Hakama Sidi-Ali made this announcement in a statement in Abuja.

The new minimum capital requirements for banks marks a turning point in the banking history.

The banks are expected to play a significant role in the attainment of $1 trillion economy projected by the Bola Ahmed Tinubu administration.

The new minimum capital base for banks with international authorisation is pegged at N500 billion.

READ ALSO: CBN to Banks, Expedite Action on Recapitalization

The minimum capital base for commercial banks with national authorisation has been raised to N200bn, an eightfold increase from the previous N25bn.

Banks with regional authorisation now require a minimum capital base of N50bn compared to the prior N10 billion.

The minimum capital requirement for merchant banks has been set at N50 billion.

The new minimum capital for non-interest banks with national and regional authorisations are N20 billion and N10 billion respectively.

The new requirements will come into effect on April 1, 2024 with a two-year window for compliance.

Banks are required to meet the minimum capital base by March 31, 2026. 

The CBN has also outlined several strategies for banks to achieve this goal: banks can raise additional capital through private placements, rights issues or public offerings.

Consolidation through mergers and acquisitions (M&A) is another option for banks to meet the higher capital requirements.

Banks may choose to downgrade or upgrade their licenses to comply with the new capital requirements for their desired authorization level.

The CBN emphasised that meeting the minimum capital requirement is not the sole focus.

Banks must also maintain the minimum capital adequacy ratio (CAR) mandated for their specific license authorization. Failure to comply with the CAR could result in mandatory capital injections to regularize the bank’s position.

READ ALSO: 17 Banks at Risk of Not Meeting CBN Capital Requirement Increase

The new minimum capital requirements apply not only to existing banks but also to all new applications for banking licenses submitted after April 1, 2024. 

The CBN said it will continue to process pending applications where capital deposits have already been made or an Approval-in-Principle (AIP) has been granted.

However, promoters of these proposed banks “will need to bridge the gap between their deposited capital and the new requirement by March 31, 2026”.

The CBN requires all banks to submit an implementation plan by April 30, 2024, outlining their chosen approach to meeting the new requirements and the timeline for each step. The CBN said it will monitor banks to ensure compliance with the new regulations within the specified timeframe.

The banking sector has experienced periods of prosperity and vulnerability. The consolidation exercise of 2004, which raised the minimum capital requirement to N25 billion, is considered a turning point.

However, with a growing economy and evolving financial landscape, concerns have grown regarding the adequacy of capital buffers held by Nigerian banks.

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This was made known by the Governor of the CBN, Olayemi Cardoso, while briefing the press after the 294th meeting of the Monetary Policy Committee (MPC) on Tuesday, March 26, 2024, in Abuja, where interest rate was hiked from 22.75% to 24.75% by the committee.

Cardoso stated that the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable, safe and sound.

The committee, however, noted that to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.

READ ALSO: 17 Banks at Risk of Not Meeting CBN Capital Requirement Increase

What the CBN Governor is saying

Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.

READ ALSO: Breaking: CBN raises benchmark MPR by 200 basis points to 24.75% 

“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”

In case you missed this

• Recall that in November 2023, Cardoso at the 58th Annual Bankers’ Dinner organized by the Chartered Institute of Bankers of Nigeria (CIBN) announced plans by the apex bank to carry out a fresh round of banking recapitalization for the Deposit Money Banks (DMBs).
• Cardoso, in his report to the Policy Advisory Council on the national economy, said President Bola Ahmed Tinubu set an ambitious target of reaching a $1 trillion Gross Domestic Product (GDP) by 2030.
• According to him, banks play a significant part in the envisaged $1 trillion economy by 2030.
• Speaking on the process of recapitalization, Cardoso highlighted the crucial need for banks to be recapitalized, considering the substantial developmental role the apex bank anticipates them to fulfil over the next seven years.

Source: Nairametrics

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This is a lower hike compared to the 400 basis points at 22.75% in the previous month. The decision announced by the CBN governor, Yemi Cardoso, propels the MPR to its highest point ever, reaffirming the CBN’s aggressive stance on monetary tightening in response to inflationary pressures.  

This is a developing story 

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