Despite Cut in MPR, Average Maximum Lending Rate Rises to 32.62%

Kayode Tokede

Despite the reduction of the Monetary Policy Rate (MPR) to 23 per cent by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) in its last meeting, the banking sector’s average maximum lending rate increased to 32.62 per cent in September 2026 from 29.20 per cent in August 2026.

Maximum lending rate refers to the highest permissible interest rate that lenders can charge borrowers. The rate is crucial for ensuring fair lending practices and protecting borrowers from excessive interest rates.

According to the CBN Money Market Indicators, the average maximum lending had opened January 2026 at 32.68 per cent when MPR was at 27 per cent, and reached a peak of 35.17 per cent in March 2026 as MPR stood at 26.50 per cent.

An investigation by THISDAY revealed that most Nigerian banks’ maximum lending rate remained flat between September and October 9, 2026 amid the 350 basis points MPR cut by MPC.

Specifically, between September 4, 2026 and October 9, 2026, “Manufacturing sector” maximum lending rates of Access Bank, Alpha Morgan Merchant Bank, Coronation Merchant Bank and Ecobank remained flat at 32.28 per cent, 35.00 per cent, and 35 per cent respectively.

FCMB Bank, Fidelity Bank Plc, First Bank of Nigeria also posted 41.40 per cent, 36 per cent and 36 per cent, respectively between September 4, 2026 and October 9, 2026…

In the period under review, Citi Bank saw its Manufacturing sector maximum lending rate drop to 19 per cent from 20 per cent, while Quest Merchant Bank Manufacturing sector maximum lending rate moved to 30 per cent from 35 per cent.

In June 2026, the International Monetary Fund (IMF) had expressed that Nigerian banks are quick to raise lending rates when the CBN tightens monetary policy, but slow to reduce borrowing costs when rates are eased.

The Washington-based institution said the country’s monetary policy transmission mechanism has strengthened since the unification of the foreign exchange (FX) market in June 2023, although distortions within the banking system still persist.

According to the IMF, interest rate transmission in Nigeria follows what economists describe as a ‘rockets-and-feathers’ pattern, where banks rapidly increase lending rates during tightening cycles but are reluctant to reduce them when policy conditions soften.

The report stated that a 100 basis-point increase in the MPR typically pushes treasury bill and lending rates up by about 175 to 180 basis points almost immediately. However, a similar rate cut results in only a 25 to 30 basis-point decline in borrowing costs.

“This asymmetry — statistically significant — implies that banks transmit tightening rapidly and even amplify it but adjust much more slowly during easing cycles,” the IMF said.

The institution noted that interbank rates respond more evenly to both tightening and easing, while deposit rates remain largely unresponsive in either direction.

The IMF attributed the weak response in deposit rates to limited competition among banks for customer deposits and the existence of what it described as ‘captive depositors’ with limited investment alternatives.

CBN data revealed that the average prime lending rate also rose to .19.04 per cent in September 2026 from 17.86per cent in August 2026. In January 2026, the average prime lending rate was at 19.54 per cent, making it the highest so far since 2006.

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.

Reacting, Investment Banker & Stockbroker, Tajudeen Olayinka stated that Nigerian banks are not compelling to adjusted lending rate to MPR, but to use it as a guide to pricing and repricing loans and advances, plus other financial instruments, in a manner that gives credence to risk/return framework associated with different loan applicants.

“You’ll recall MPR was adjusted to 23per cent, to make it aligned with what the market is asking for. Only prime borrowers will receive an interest rate that is close to MPR or risk-free rate. It is also a function of demand and supply,” he said.

Also, the Vice President, Highcap Securities, David Adonri stated that the increase in lending rate in the Nigerian banking sector means there was tight money supply in the credit market in September 2026 despite massive cuts in MPR.

Cordros Research in a report stated that it expected the market performance to be shaped by the extent to which the policy adjustment translates into lower market yields, improved liquidity and reduced corporate financing costs.

“Continued macroeconomic stability, particularly in inflation and the exchange rate, will also remain important to investor sentiment. Against this backdrop, 2026FY earnings and dividend announcements, foreign and domestic portfolio flows, corporate actions and company-specific developments are likely to be the key drivers of the market performance in Q4-2026,” the firm had explained.

However, analysts have predicted a further increase in the average maximum lending and primer lending rate amid steady ease in inflation figures.