Commercial banks in Nigeria have maintained or increased preferential lending rates for businesses in several major sectors despite successive interest rate cuts by the Central Bank of Nigeria (CBN), raising concerns about the slow transmission of monetary easing to the real economy.
An analysis of the CBN’s published interest rate schedules for August 2025 and October 2026 by Financial Vanguard shows that average prime lending rates rose in eight of the 11 sectors examined, even as the regulator reduced its benchmark Monetary Policy Rate (MPR) by a cumulative 450 basis points over the 13-month period.
The affected sectors include agriculture, forestry and fishing; construction; government; healthcare and social work; real estate; manufacturing; education; and finance and insurance.
Agriculture recorded the biggest increase, with its average prime lending rate rising from 23.44 per cent to 24.77 per cent. Construction lending rates climbed from 25.25 per cent to 26.40 per cent, while the rate for government-related borrowing increased from 25.52 per cent to 26.49 per cent.
In healthcare and social work, the average rate moved from 26.11 per cent to 26.96 per cent. Real estate lending rose from 25.82 per cent to 26.57 per cent, while manufacturing increased from 23.79 per cent to 24.36 per cent.
Education recorded an increase from 26.33 per cent to 26.85 per cent, while finance and insurance rose from 25.55 per cent to 25.88 per cent.
The trend was different in arts, entertainment and recreation, oil and gas, and information and communication, where average prime lending rates fell by 0.66, 0.24 and 0.08 percentage points, respectively.
The increase in prime rates contrasts with a broader decline in average maximum lending rates. Across 10 sectors, the average maximum rate dropped from 33.78 per cent in August 2025 to 32.58 per cent in October 2026, representing a reduction of 1.20 percentage points.
The figures suggest that while some borrowers are beginning to benefit from lower quoted interest rates, businesses classified as preferred or creditworthy customers have yet to experience consistent reductions in borrowing costs.
Analysts point to uneven transmission of CBN rate cuts
The CBN began easing monetary policy in September 2025, cutting the MPR from 27.5 per cent to 27 per cent. It reduced the rate by another 50 basis points to 26.5 per cent in February 2026, before announcing a larger 350-basis-point cut to 23 per cent in September.
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 further to 14.63 per cent in September.
The reductions had raised expectations that commercial banks would lower lending rates, easing the cost of financing for businesses and households. However, analysts say the relationship between the CBN’s benchmark rate and commercial banks’ lending charges is influenced by several other factors.
Tunde Abioye, Head of Equity Research at Quest Merchant Bank, said the rise in sectoral prime rates did not necessarily mean monetary policy was failing.
He explained that banks consider their funding costs, available liquidity, the profile of borrowers and the risks associated with individual loans when setting interest rates.
Abioye said the figures were more likely to reflect a delayed and uneven response to the CBN’s easing measures than a complete breakdown in the transmission of monetary policy.
Nnamdi Nwizu, Co-Founder of Lagos-based investment bank Comercio Partners, also attributed the divergence to differences in how banks price loans.
He said an independent review of the CBN’s published rates showed that increases were not widespread across the banking industry.
Of 174 comparable bank-sector prime lending rate observations across seven identified sectors, 65 recorded reductions, 79 remained unchanged and 30 increased.
Nwizu said this indicated that the rise in average prime rates was largely influenced by significant upward adjustments at a smaller number of banks, rather than a general increase across the sector.
Deposit rates also fall
The reduction in lending rates has not been uniform, but banks have also lowered the returns offered to depositors.
Financial Vanguard’s analysis showed that the average savings deposit rate fell from 7.81 per cent in August 2025 to 6.61 per cent in October 2026, a decline of 1.20 percentage points.
Average rates on time deposits dropped more sharply, falling from 14.52 per cent to 12.28 per cent, a reduction of 2.24 percentage points. Demand deposit rates also edged down from 1.59 per cent to 1.48 per cent.
The benchmark savings rate offered by major commercial banks declined from 8.25 per cent to 6.90 per cent.
For time deposits, the reported range narrowed from between 6.91 and 21.51 per cent to between 0.10 and 17.04 per cent.
Nwizu said the decline in maximum lending rates, deposit quotations and rates offered by some banks showed that a degree of repricing had already taken place. However, the benefits had not been consistently passed on to preferred borrowers.
He cautioned against drawing firm conclusions about the impact of the latest MPR reduction, noting that the 350-basis-point cut announced on September 22, 2026, came just 17 days before the October lending-rate observation.
The CBN had described the adjustment as an operational recalibration, he added, suggesting that more time might be needed before its full effect became visible in commercial lending rates.
Nwizu also cited a June 2026 International Monetary Fund study which found that interest rate changes in Nigeria tend to affect lending rates asymmetrically, with banks responding more quickly to monetary tightening than to easing.
He said the pattern supported the view that lower policy rates could take longer to translate into cheaper loans, even as some banks had already adjusted their lending and deposit rates.
High borrowing costs threaten business expansion
The continued rise in prime lending rates could affect companies seeking credit to expand operations, purchase equipment, finance inventories or meet working capital requirements.
Abioye warned that businesses facing persistently high borrowing costs might scale back plans for expansion, capital expenditure and long-term investment.
He said the impact would differ across industries and individual borrowers, depending on their financing needs and access to alternative sources of credit.
Nwizu said prolonged high interest rates could undermine private investment, reduce corporate profitability and slow job creation, particularly in sectors that depend heavily on bank financing.
For manufacturers and agricultural businesses, expensive loans increase the cost of purchasing raw materials, maintaining inventories and financing daily operations.
In real estate, higher borrowing costs could make projects less viable and delay new developments. Businesses in education, information technology and financial services could also reconsider expansion plans and investment in new facilities or equipment.
At the wider economic level, Nwizu warned that sustained high financing costs could weaken productive capacity and slow employment growth.
He added that the pressure on businesses could also complicate efforts to bring inflation down sustainably, as higher production and operating costs may feed into the prices of goods and services.
However, he stressed that the lending-rate increases were not uniform across banks, leaving room for some borrowers to benefit from the ongoing easing cycle.
