Maximum Lending Rate in the Banking Sector Falls to 34.78%

Kayode Tokede

After the Central Bank of Nigeria (CBN) lowered the Monetary Policy Rate (MPR) by a marginal amount, the average maximum lending rate in the banking sector fell to 34.78 % in May 2026 from 35.17 % in April 2026.

The maximum lending rate is the highest interest rate that lenders may charge borrowers. It is important for ensuring fair lending practices and protecting borrowers from excessive interest costs.

This is the first decline in the average maximum lending rate since the Monetary Policy Committee (MPC) of the CBN cut the interest rate to 26.50 % in late February 2026 from 27 %.

The committee cited sustained disinflation, naira appreciation, and an improved external position as reasons for the rate cut.

According to the CBN’s “Money Market Indicators,” the average maximum lending rate opened January 2026 at 32.68 % and rose to 35.17 % in February 2026, when the interest rate was reduced to 26.50 %.

CBN data show that the average maximum lending rate remained unchanged at 35.17 % between February and April 2026 while the MPR stayed at 26.50 %.

The International Monetary Fund (IMF) noted that Nigerian banks raise lending rates quickly when monetary policy tightens 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,” the 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 IMF report explained.

In 2025, the maximum lending rate was 29.32 % when the MPC voted to keep the MPR at 27.00 % from 27.50 %.

The average maximum lending rate has raised concerns about the potential impact on the cost of credit for businesses already facing economic challenges due to foreign‑exchange unification and fuel‑subsidy removal by the Federal Government.

CBN data show that the average maximum lending rate rose to 29.79 % in January 2025 from 29.71 % in December 2024 when MPC members voted to hold the MPR at 27.50 %.

The banking sector lending rate in Nigeria averaged 14.17 % from 1961 until 2024, reaching an all‑time high of 37.80 % in September 1993 and a record low of six % in April 1975. In 2020, the average maximum lending rate peaked at 30.73 % when the MPR was 13.5 %.

CBN numbers also revealed that the average prime lending rate increased to 19.10 % in May 2026 from 18.87 % in April 2026.

The prime lending rate indicates the rate that may be offered to the most creditworthy customers by Nigerian banks.

So far this year, the average prime lending rate has reached 19.54 %, the highest in over ten years.

Nigeria’s average prime lending rate reached an all‑time high of 19.66 % in November 2009 and a record low of 11.13 % 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 and stabilize the local currency in the foreign‑exchange market.

Experts predict a further increase in the average maximum lending and prime lending rates despite a stable foreign‑exchange market and easing inflation figures.

This unprecedented move has set the interest rate at its highest level to date and reflects the CBN’s determined effort to address persistent pressure on foreign exchange and inflation.