New spike in bank lending costs is bad for the economy

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New spike in bank lending costs is bad for the economy


Business loan concept. FILE PHOTO | NMG

Reports that more than half of commercial banks increased their personal and business lending rates in the second quarter of the year signal difficulties in accessing affordable credit.

The latest bank lending and overdraft rate data released by the regulator shows some lenders charged as much as 16.4% for business loans in June and 16.8% for overdrafts, a jump up 4.8 percentage points from March rates.

This sharp increase in the cost of loans will in fact deprive borrowers of the respite they need to strengthen their liquidity. This does not bode well for an economy struggling with inflation, election uncertainties and the slow recovery from the Covid-19 economic crisis.

The high cost of credit will also kill small businesses which, according to state statistics, are the main job creators. By increasing interest charges, banks risk losing some customers who are already feeling the effects of difficult economic conditions.

Banks should consider lower yields, which take into account the long-term needs of their customers as well as the economy to foster shared prosperity.

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