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.MAN lament impact on local production

Kayode Tokede

The average maximum lending rate in Nigeria’s banking sector increased to 29.79 per cent in January 2025, signifying the high cost of borrowing from financial institutions, according to statistics  by the Central Bank of Nigeria (CBN).

Though the CBN last week retained its Monetary Policy Rate (MPR) at 27.5 per cent, the apex bank’s report showed that the average maximum lending rate rose to 29.79 per cent in January 2025.

In December 2024, the maximum lending rate was 29.71, when the Monetary Policy Committee (MPC)  voted to retain the MPR at 27.50 per cent. 

The average maximum lending rate, according to CBN’s “Money Market” statistics was at 27.07 per cent in January 2024.  

Maximum lending rates refer to the average of the highest lending rates charged by deposit money banks in Nigeria.

THISDAY analysis of the CBN’s ‘money market indicators’, showed that an increase in the average maximum lending rate has a relationship with a hike in MPR.

As gathered by THISDAY, the average maximum lending rate closed December 2024 at 30.28 per cent from 26.62 per cent reported in December 2023.

The steep increase in the MPR rate has sparked concerns regarding the potential impact on the cost of credit for businesses already facing economic hardships.

Further analysis of the data CBN revealed that the average maximum lending rate rose to 29.79 per cent in January 2025 from 29.71 per cent in December 2024 when Monetary Policy Committee members of CBN voted to retain MPR to 27.50 per cent. 

Early in 2024, the money market indicators of CBN showed a 27.07 per cent average maximum lending rate in January 2024 when MPR was at 18.75 per cent, while in March 2024, it closed at 29.38 per cent as MPR stood at 24.75 per cent in March 2024.

When the MPR increased from 26.75 per  cent in  August 2024 to 27.25 per cent, the average maximum lending rate also rose from 29.93 per cent in August 2024 to 30.21 per cent in September 2024.

The banking sector lending rate in Nigeria averaged 14.17 per cent from 1961 until 2024, reaching an all-time high of 37.80 per cent in September of 1993 and a record low of six per cent in April of 1975.

In 2020, the average maximum lending rate reached a peak of 30.73 per cent when the MPR rate stood at 13.5per cent

The Manufacturers Association of Nigeria (MAN) had lamented that the average maximum lending rate charged by banks on loans to its members rose to 35 per cent in the second quarter (Q2) of 2024, up from 28.6 per cent in the first quarter (Q1) of 2024.

A report by MAN showed that the aggregate index score of the manufacturing sector decreased from 53.5 points to 51.9 points in Q2 2024.

But CBN numbers revealed that the average prime lending rate dropped to 18.49 per cent in January 2025 from per cent in January 2024. 

The prime lending rate indicates the possible rate offered to the most creditworthy customers by Nigerian banks.

Analysts predicted a further increase in the average maximum lending rate amid an unstable foreign exchange market and double-digit inflation rate.

The unanticipated rise in MPR has impacted the banking sector lending rate as the CBN sustained pressure in tackling inflationary pressure.

This unprecedented move has not only set the MPR at its highest level to date but also reflects the CBN’s determined effort to address the persistent pressure on foreign exchange and inflation.

In an interview with THISDAY, the Vice President of Highcap Securities, Mr. David Adnori explained that commercial banks review their lending rates regularly, subject to their respective cost of funds and the direction of MPR, not necessarily using MPR as a distinct value.

He stated that the MPR gives them the direction of interest rates in the market and the price they will pay if they have to borrow from or lend to CBN.

On the MPC outlook for 2025, a group of analysts at Cordros Research in a report titled, “Nigeria in 2025. Reform to Recovery: Navigating the Rebound,” said, “As we have stated in our domestic macros report, we think the MPC is set to pause its rate-hiking cycle as inflation begins to moderate in 2025, owing to the high statistical base effect and reduced naira volatility.

“Furthermore, the anticipated reduction in interest rates in the advanced economies will reduce the pressure on the MPC to raise interest rates further. 

“However, the still elevated inflation risks will likely induce the MPC to hold the policy rate steady for a longer period to consolidate gains of previous rate hikes while achieving a lower negative real rate of return.”