Banks raise lending rates for top borrowers despite CBN cuts

In real estate, the average prime rate increased to 26.57 per cent from 25.82 per cent, while manufacturing rose to 24.36 per cent from 23.79 per cent.

Education increased to 26.85 per cent from 26.33 per cent, and finance and insurance rose to 25.88 per cent from 25.55 per cent.

However, prime lending rates declined marginally in arts, entertainment and recreation, oil and gas, and information and communication, falling by 0.66, 0.24 and 0.08 percentage points, respectively.

The development contrasts with a decline in average maximum lending rates across 10 sectors — arts and entertainment, government, education, human health, finance and insurance, manufacturing, oil and gas, agriculture, information and communication, and construction — from 33.78 per cent to 32.58 per cent, representing a reduction of 1.20 percentage points.

The Financial Vanguard analysis indicated that while some borrowers may be benefiting from lower quoted lending rates, preferred customers in important segments of the productive economy have yet to experience a uniform reduction in borrowing costs.

Uneven transmission of rate cuts

Commenting on the development, Tunde Abioye, Head, Equity Research, Quest Merchant Bank, said the divergence between the Monetary Policy Rate (MPR) and sectoral prime lending rates did not necessarily indicate a breakdown in monetary policy transmission.

He explained, “Lending rates reflect not only the policy rate but also banks’ funding costs, liquidity conditions, borrower mix and risk-adjusted pricing considerations.

‘‘What the data may be showing is a lagged and uneven transmission of monetary easing across sectors rather than an outright failure of the easing cycle to lower borrowing costs.”

Citing an independent analysis of the CBN’s rate publications conducted by his bank, Nnamdi Nwizu, Co-Founder, Comercio Partners, a Lagos based investment bank, also attributed the divergence to uneven transmission and differences in how banks price credit.

He said: “The divergence reflects the uneven transmission of monetary policy into bank lending rates, alongside differences in how individual banks price credit.

“Although CBN has reduced its benchmark policy rate, commercial banks determine lending rates based on several considerations, including funding costs, liquidity requirements, operating expenses, credit risks and competitive conditions.

“Our analysis suggests that the increase in average prime lending rates was not widespread across banks. Of the 174 comparable bank-sector prime lending rate observations across the seven identified sectors, 65 recorded reductions, 79 remained unchanged and only 30 recorded increases.

“This suggests that the increase in average prime lending rates was influenced by relatively large upward adjustments at a smaller number of banks, rather than a general increase across the banking system.”

Savings and deposit rates also decline

The movement in lending rates has occurred alongside reductions in the rates banks offer depositors.

Financial Vanguard findings show that the average savings deposit rate declined to 6.61 per cent in October 2026, from 7.81 per cent in August 2025, a reduction of 1.20 percentage points.

Average time-deposit rates recorded a sharper decline, falling by 2.24 percentage points to 12.28 per cent from 14.52 per cent, over the period. Average demand deposit rates also declined, although marginally, to 1.48 per cent from 1.59 per cent.

For savings deposits, the prevailing benchmark rate offered across major commercial lenders dropped to 6.90 per cent from 8.25 per cent. The average rate on time deposits fell from 14.52 per cent, within a reported range of 6.91 to 21.51 per cent, to 12.28 per cent, with the range narrowing to 0.10 to 17.04 per cent.

Nnamdi asserted that the findings suggest that monetary policy transmission remains uneven, although it would be premature to conclude that monetary easing has failed to translate into cheaper credit.

The decline in average maximum lending rates across the  sectors examined, alongside reductions in deposit quotations and several bank-level prime lending rates, indicates that some re-pricing has already occurred. “Nevertheless, the increase in the average quoted prime lending rate across six of the seven highlighted sectors suggests that these benefits have not been uniformly reflected in the lending terms available to preferred borrowers.

Importantly, the CBN’s 350-basis-point MPR adjustment occurred on 22 September 2026, just 17 days before our October lending-rate observation.

“It may therefore be premature to assess its full impact on borrowing costs, particularly as the CBN characterised the adjustment as an operational recalibration. This is consistent with a June 2026 IMF study highlighting asymmetric interest-rate transmission in Nigeria, where lending rates respond faster to monetary tightening than to easing.

“Consequently, the benefits of lower policy rates may take longer to materialise.

‘‘The decline in maximum lending rates and deposit quotations already suggests some repricing, although the transmission to prime borrowers remains incomplete.”

Implications for businesses

According to Abioye and Nnamdi, the divergence between prime and maximum lending rates has implications for companies planning to expand production, acquire equipment or finance working capital.

Abioye warned that persistently elevated lending rates for prime borrowers could increase financing costs beyond what businesses would normally expect during an easing cycle.

He said, “If lending rates for prime borrowers remain elevated or continue to rise, affected firms could face higher financing costs than would otherwise be expected during an easing cycle.

‘‘This may moderate the appetite for new borrowing, particularly for discretionary expansion projects, capital expenditure, and long-term investments.

‘‘However, the impact is likely to vary across sectors and borrowers.”

Nwizu warned that sustained high borrowing costs could weaken private investment, corporate profitability and employment creation, while constraining improvements in productive capacity.

He explained, “Persistently elevated lending rates could continue to constrain investment, corporate profitability and business expansion, particularly in sectors where access to affordable bank financing is critical.

“For manufacturing and agriculture, expensive credit raises the cost of financing raw materials, inventories and working capital.

“In real estate, higher financing costs could affect project viability and delay new developments, while businesses in education, information technology and financial services may reconsider expansion or capital expenditure plans.

“At the macroeconomic level, sustained high borrowing costs could weaken private investment, slow employment creation and constrain improvements in productive capacity.

“These supply-side pressures could also complicate efforts to achieve sustainable disinflation. Nevertheless, our findings suggest that these pressures are not uniform across the banking system.”

 Vanguard