Nigerian Banks Raise Prime Lending Rates in Eight Sectors Despite CBN Rate Cuts

Nigerian banks have increased average prime lending rates in eight key sectors of the economy despite successive reductions in the Central Bank of Nigeria’s (CBN) benchmark interest rate, raising concerns about the cost of credit for businesses.

The CBN reduced the Monetary Policy Rate (MPR) from 27.5 per cent to 27 per cent in September 2025, before cutting it further to 26.5 per cent in February 2026. In September 2026, the bank announced a larger reduction of 350 basis points, bringing the benchmark rate down to 23 per cent.

The September decision followed a sustained decline in inflation, which fell from 15.93 per cent in May 2026 to 15.39 per cent in August and 14.63 per cent in September. The cumulative 450-basis-point reduction in the MPR over 13 months had raised expectations that commercial banks would also lower lending rates.

However, an analysis of CBN interest rate schedules for August 2025 and October 2026 by Financial Vanguard found that average prime lending rates increased in eight of 11 sectors examined. Prime lending rates are preferential borrowing rates generally offered to creditworthy corporate customers.

Agriculture, forestry and fishing recorded the largest increase, with the average rate rising from 23.44 per cent to 24.77 per cent. Construction increased from 25.25 per cent to 26.40 per cent, while government borrowing rates rose from 25.52 per cent to 26.49 per cent.

Other increases were recorded in human health and social work, where rates climbed from 26.11 per cent to 26.96 per cent; real estate, from 25.82 per cent to 26.57 per cent; manufacturing, from 23.79 per cent to 24.36 per cent; education, from 26.33 per cent to 26.85 per cent; and finance and insurance, from 25.55 per cent to 25.88 per cent.

In contrast, average prime lending rates declined in arts, entertainment and recreation by 0.66 percentage points, oil and gas by 0.24 percentage points, and information and communication by 0.08 percentage points.

The trend was different for average maximum lending rates, which declined by 1.20 percentage points, from 33.78 per cent to 32.58 per cent, across the 10 sectors covered in the analysis. The figures suggest that although some borrowers have benefited from lower quoted rates, the reduction has not been evenly reflected in the preferential rates offered to corporate customers.

Tunde Abioye, Head of Equity Research at Quest Merchant Bank, said the gap between the MPR and sectoral lending rates did not necessarily mean that monetary policy was failing. He explained that banks also consider their funding costs, liquidity positions, borrower profiles and credit risks when determining lending rates.

Abioye described the trend as a possible case of delayed and uneven transmission of monetary easing rather than a complete breakdown in the process.

Similarly, Nnamdi Nwizu, Co-Founder of Lagos-based investment bank Comercio Partners, said differences in how banks price loans could explain why average prime rates increased in some sectors despite the CBN’s policy adjustments.

Citing his firm’s analysis of 174 comparable bank-sector prime lending rate observations across seven identified sectors, Nwizu said 65 recorded reductions, 79 remained unchanged, while 30 increased. He argued that the overall rise in average rates was influenced by significant upward adjustments at a smaller number of banks rather than a general increase across the banking system.

The analysis also showed that deposit rates declined over the same period. Average savings deposit rates fell from 7.81 per cent in August 2025 to 6.61 per cent in October 2026, while average time-deposit rates dropped from 14.52 per cent to 12.28 per cent. Demand deposit rates also declined slightly, from 1.59 per cent to 1.48 per cent.

Nwizu cautioned against concluding that monetary easing had failed to reduce borrowing costs, noting that the latest 350-basis-point MPR cut was announced on September 22, 2026, just 17 days before the October lending-rate figures were recorded. He said banks might need more time to adjust their lending terms fully.

He also cited a June 2026 International Monetary Fund study highlighting asymmetric interest rate transmission in Nigeria, where lending rates tend to respond more quickly to monetary tightening than to easing.

The implications for businesses could be significant, particularly for companies that depend on bank financing to expand operations, purchase equipment and fund working capital. Abioye warned that persistently high rates for preferred borrowers could discourage new borrowing, capital expenditure and long-term investment.

Nwizu added that expensive credit could affect manufacturing and agriculture by increasing the cost of raw materials, inventory and working capital. In real estate, it could delay developments, while businesses in education, technology and financial services might reconsider expansion plans.

Both analysts warned that sustained high borrowing costs could weaken private investment, corporate profitability and employment creation. They also noted that the impact would vary across sectors and individual borrowers, as the banking system has not adjusted lending rates uniformly.