How Elumelu’s Heirs Holdings borrowed N41.8bn from UBA at 15% – far lower than market interest rate

MR Tony Elumelu’s Heirs Holdings got loans totalling N41.823 billion from the United Bank for Africa (UBA) at 15 percent interest rate, Economy Post has found.

Mr Elumelu is the chairman of both UBA and Heirs Holdings. He is also the founder of Tony Elumelu Foundation.

Findings from the bank’s half-year financial statement showed that as at December 2022, Elumelu’s Heirs Holdings owed UBA N13.442 billion. However, the firm’s debt to the bank rose to N41.823 billion by June 2023. This shows that Elumelu’s Heirs Holdings borrowed N28.381 billion from UBA between January and June 2023.

Interestingly, while the loans borrowed by Heirs Holdings from UBA rose by 211.137 percent between January and June 2023, the interest rate remained the same. In fact, the bank’s half-year financial statement showed that the rate was static at 15 percent.

Currently, the Central Bank of Nigeria (CBN)’s monetary policy rate (MPR), which is the benchmark interest rate in the economy, is 18.75 percent, meaning that any bank lending below that is doing so below the cost of funds.

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As at December 2022, the CBN’s MPR was 17.5 percent, meaning that Heirs Holdings’ loans, particularly the N28.381 billion obtained between January and June 2023, was obtained below the benchmark and market rates.

The market rate of loans in Nigeria is between 20 percent and 30 percent, analysts said.

Heirs Holdings is an investment firm founded by Mr Elumelu in 2010 “to drive private investment and champion entrepreneurship across Africa.”

UBA loans are much higher

The UBA loans to customers cost much higher than 15 percent. The bank’s personal loan products cost 2.5 percent interest rate monthly or 30 percent rate annually. Its personal loan product named Click Credit attracted 23 percent interest rate annually before the CBN rate increases began in the middle of 2022.

The bank says on its website that its personal loans attract a one-off management fee of 1 percent, which means that a borrower will repay the principal amount at 31 percent interest and management rates.

The personal loan also comprises a maximum loan amount of N30million, a minimum loan amount of N200,000, and access up to 60 percent of the debt service ratio (DSR). UBA also has a school loan, an auto loan as well as the Young Entrepreneur Finance Scheme.

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UBA earned N428.292 billion from interest income in June 2023 as against N257.361 billion received in June 2022. Interest income represents earnings from loans to third parties, including customers and corporate organisations. Loans to customers, corporates and other entities at UBA were nearly N3 trillion as at June 2023.

Discriminatory loan, unhealthy

Finance experts and small businesses said it was not a good practice for banks to lend to related parties at cheaper rates while demanding an arm and a leg from small businesses.

A Lagos-based small business owner, Ms Theresa Owene, said the discriminatory nature of loans in the banks was hurting the economy.

“If big and connected companies are getting loans at lower interest rates while small businesses are getting them at far higher rates, how then would anybody expect an even development. It is actually the small businesses that should be getting loans at 15 percent, not big businesses or connected firms,” she said.

A finance expert, Mr Daniel Obiora, said the situation must be checked by the CBN.

“There is nothing wrong with anybody getting a loan from a bank which he or she chairs. However, there is a moral burden on a bank when its related parties are getting loans at cheaper rates. Money in a bank is a liability, so it belongs to depositors. Hence these depositors must be considered first before even the staff or directors.

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“It is not right for directors or bank management to obtain finance at far cheaper rates – even when several depositors cannot get loans from their banks. I think the CBN must begin to check this kind of practice because it creates an unequal society where the rich get richer and the poor get poorer.”

A former staff member of a Tier-1 bank, Mr Otienne Maxwell, said this was a normal practice in deposit money banks.

“It is nothing strange in banks. If a bank decides 4 or 15 percent is good for its staff, it is not a problem. However, it is absolutely wrong to give out depositors’ money at low rates when the repo or benchmark rate is nearly 20 percent. It is often meant to compensate staff or directors for their efforts, but it is discriminatory,” he added.

UBA did not respond

Group Head, Media and External Relations at UBA, Mr Ramon Olarenwaju Nasir, did not respond to enquiries as to why Mr Elumelu obtained loans at 15 percent – below the market interest rate – from the bank.

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