Following the marginal reduction of the Monetary Policy Rate (MPR) by the
Central Bank of Nigeria (CBN), the banking sector average maximum lending
rate depreciated to 34.78 per cent in May 2026 from 35.17per cent in April
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.
This is the first time the average maximum lending rate declined since the
Monetary Policy Committee (MPC) of the CBN reduced interest rate to 26.50
per cent in late February 2026 from 27 per cent.
The committee had cited sustained disinflation, naira appreciation, and an
improved external position for its rate cut.
According to the CBN’s “Money Market Indicators” the average maximum
lending rate that opened January 2026 at 32.68 per cent moved to 35.17per cent
in February 2026 at a time interest rate was reduced to 26.50 per cent.
The CBN data revealed that the average maximum lending rate remained flat at
35.17 per cent between February and April 2026 amid 26.50 per cent interest
rate.
The International Monetary Fund (IMF) had responded to unmoved average
average maximum lending rate between February and April 2026, expressing
that Nigerian banks raise lending rates rapidly when monetary policy is
tightened but are slower to reduce borrowing costs or increase returns to savers.
“Interest rate transmission displays a clear “rockets-and-feathers” pattern, with
borrowing rates adjusting upward rapidly during tightening cycles but declining
only gradually when policy is eased,” IMF said
“When the CBN tightens, wholesale and lending rates respond strongly and
more than proportionally: a 100 basis-point MPR hike raises T-bill and lending
rates by roughly 175–180 basis points on impact, whereas a comparable cut
lowers them by only about 25–30 basis points.
“This asymmetry – statistically significant – implies that banks transmit
tightening rapidly and even amplify it but adjust much more slowly during
easing cycles. By contrast, while the interbank rate responds symmetrically
(around 0.6 in both directions) and deposit rates show little response either way
(around 0.12), both are not significant,” the report by IMF explained.
In 2025, the maximum lending rate was 29.32 per cent, when the MPC voted to
retain the MPR at 27.00 per cent from 27.50 per cent.
The average maximum lending 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.
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
CBN numbers also revealed that the average prime lending rate increased to
19.10 per cent in May 2026 from 18.87per cent in April 2026.
The prime lending rate indicates the possible rate offered to the most
creditworthy customers by Nigerian banks.
So far this year, the average prime lending rate has reached 19.54 per cent, the
highest in over 10 years.
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.