Mirroring Monetary Policy, Maximum Lending Rate Droped to 29.32% in December
Kayode Tokede
The disparity between Central Bank of Nigeria (CBN) monetary policy rate (MPR) and commercial banks’ lending rate closed further at the end of 2025 as the banking sector average maximum lending rate dropped to 29.32 per cent from 29.71 per cent in December 2024.
The Monetary Policy Committee (MPC) of the CBN had cut down on its Monetary Policy Rate to 27 per cent during its last meeting in 2025 from 27.50 per cent.
Average maximum lending rate reached 30.50 per cent in February 2025 when MPR was at 27.50 per cent.
The maximum lending rate refers to the highest interest rate that banks charge for loans, particularly to customers with lower credit ratings. It is often influenced by the MPR set by the CBN which can affect the cost of borrowing.
According to the CBN’s money market indicator, the reported 30.50 per cent and 29.31 average maximum lending in February and July 2025, were the highest and lowest rates, respectively.
DMBs typically adds a margin of +260 and -250 basis points above the interest rate to cover credit risk, inflation, and operational costs.
In the move to tackle inflation rate and stabilise Naira at the foreign exchange market, the CBN since August 2025 retained its rate at 27 per cent from 27.5per cent it was in 2024.
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 interest rate has sparked concerns regarding the potential impact on the cost of credit for businesses already facing economic hardships due to foreign exchange unification and fuel subsidy removal by the Federal Government.
CBN data 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 MPC 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.
CBN data showed that the average prime lending rate closed in 2025 at 18.02 per cent from 18.56per cent in December 2024.
The prime lending rate indicates the possible rate offered to the most creditworthy customers by Nigerian banks.
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 interest rate reflected in the average prime lending rate last year as the CBN intensified its effort to tackle inflation rate and stabilize the local currency at the foreign exchange market.
However, analysts have predicted a further decline in the average maximum lending rate as the MPC of CBN expected to hold its first meeting in 2026.
Commenting, analysts at Cordros Research said, “Despite sustained moderation in inflation, the MPC has continued to adopt a cautious approach to policy adjustment, partly reflecting, in our view, technical uncertainties surrounding the rebased CPI series.
“Beyond the Committee’s official rationale, we believe the decision to maintain the policy rate at the previous meeting was partly influenced by concerns about a potential short term uptick in headline inflation in December.
“This caution was evident in the narrow split reflected in the published personal statements, where six members voted to retain the MPR at 27per cent, citing the risk of a short-term rebound in headline inflation driven by base effects, while five members supported a 50basis points cut.”
They added, “However, the anticipated spike did not materialise, following the revision of the CPI index reference period. Instead, headline inflation moderated further in January against broad market expectations, although we assess that the magnitude of the decline was largely mechanically driven.
“While some uncertainty around the rebased CPI framework persists, we do not foresee any imminent technical distortions that could materially alter the inflation path or undermine policy credibility.
“Furthermore, improving exchange rate stability and easing supply side pressures provide structural support for continued disinflation. In addition, the external backdrop remains relatively favourable, with a softer US dollar and stable global financial conditions sustaining capital flows toward high-yield emerging and frontier markets, including Nigeria.
“Accordingly, these developments provide room for a gradual adjustment of the policy stance, with the Committee likely remaining mindful of inflation dynamics and external sector risks. On this basis, we expect the MPC to reduce the MPR by 50basis points to 26.50per cent at its upcoming February meeting, while leaving all other policy parameters unchanged.”
On his part, Investment Banker & Stockbroker, Mr. Tajudeen Olayinka stated that Nigeria 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 interest rate 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 added, “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 interest rate, to enable them arrive at their various prime lending rates which are usually reserved for their prime customers.”
