Borrowers Groan as Maximum Lending Rate Hit 30.50%Despite 27.50%MPR

Kayode Tokede

Despite the Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) retaining interest rate at 27.50 per cent, maximum lending rate in Nigeria’s banking sector increased to 30.50 per cent in February 2025 from 29.79 per cent in January 2025. 

Maximum lending rate represents the average of the highest lending rates charged by deposit money banks in Nigeria and it is influenced by the CBN’s monetary policy adjustments aimed at controlling inflation and stabilising the local currency. 

According to CBN statistics, maximum lending when compared to February 2024 was 26.55 per cent as it has gained 395basis points in one year. 

Maximum lending rate at 30.50 per cent as of February 2025, signifies high cost of borrowing from financial institutions by bank customers.

The CBN since November 2024 retained its Monetary Policy Rate (MPR) or interest rate at 27.50 per cent from 27.25 per cent. 

In December 2024, the maximum lending rate was 29.71 per cent, when the MPC voted to retain the MPR at 27.50 per cent

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.

According to CBN data, the average maximum lending rate rose to 29.79 per cent in January 2025 from 29.71 per cent in December 2024 when MP 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 6 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 13.5 per cent

The CBN statistics revealed that the average prime lending rate dropped to 18.36  per cent in February  2025 from 18.49per cent in January 2025.  

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

As gathered by THSIDAY, Nigeria’s average prime lending rate reached an all-time high of 19.66 per cent in November 2009 and a record low of 11.13per cent in March 2021.

The steady increase in MPR reflected in the average prime lending rate last year as the CBN intensified its effort to tackle inflation rate and stabilise the local currency at the foreign exchange market.

However, analysts have 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 in 2024 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.

Commenting, 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 his part, Investment Banker & Stockbroker, Mr.  TajudeenOlayinka said that banks review their lending rates on a regular basis, subject to their respective cost of funds and the direction of MPR, not necessarily using MPR as a distinct value.

According to him, the MPR signals to them the direction of interest rate in the market and the price they will pay if they have to borrow from or lend to CBN.

He said, “Therefore, their deposit mix, which includes idle customers’ deposits, determines what their weighted average cost of funds would be. They then factor in the signal from MPR, to enable them arrive at their various prime lending rates which are usually reserved for their prime customers”

Speaking, the Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose said, “Businesses need a lot of credit facilities to survive, but in an environment where the lending rate is astronomical, many enterprises, especially small and medium-scale, might find it extremely difficult to survive as their products will remain uncompetitive and the cost of production and the sale prices to consumers will remain high.”

He added, “A hike in interest rate is often considered a manufacturers’ nightmare as it stifles productivity and expansion. A hike in interest rate slows down productivity, as manufacturers struggle to keep machinery in operations and pay salaries. Those who look forward to borrowing for expansion and production will have to shelve such ideas in the face of the high cost of accessing funds.”

On the MPC outlook for 2025, 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, 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.”