Following several Monetary Policy Rate (MPR) increase by the Monetary Policy Committee (MPC) of the of the Central Bank of Nigeria (CBN) in a bid to fight inflation, the average prime lending rate to bank customers in Nigeria closed 2024 at 18.56 per cent, the highest point since 2010.

This is according to the latest ‘money market indicator’ of the CBN, which revealed that average prime lending rate that opened 2024 at 13.82 per cent, went up by 474 basis points to close 2024 at 18.56 per cent amid increase in MPR from 18.75 per cent to 27.50 per cent. 

The rate highest peak was 18.74 per cent February 2010 when MPR was at 6 per cent. 

The prime lending rate is the interest rate that banks charge their most creditworthy customers, usually large corporations and it serves as a benchmark for many other loans, including personal and business loans.

In Nigeria, the prime lending rate in the banking sector is influenced by monetary policy, higher inflation, liquidity in the banking system and economic conditions.

A THSIDAY research revealed that Nigeria’s average prime lending rate reached an all-time high of 19.66 per cent in November 2009 and a record low of 11.13 per cent in March 2021.

The steady increase in MPR reflected in the average prime lending rate last year as the CBN intensifies its effort to tackle inflation rate and stable the local currency at the foreign exchange market. 

The first hike in MPR was from 18.75 per cent to 22.75 per cent, the second to 24.75 per cent, the third to 26.25 per cent, the fourth to 26.75 per cent and recently 27.25 per cent in the September 2024.

MPR, thus, moved to 27.50 per cent in November 2024 with the average prime lending rate jumping to 18.39 per cent to close last year at 18.56 per cent.

These increases, totalling 875 basis points in MPR since Mr. Olayemi Cardoso’s appointment, have been driven by efforts to tackle the country’s spiralling inflation, which include high core and food inflation.

An investigation by THISDAY showed that the increase in MPR impacted on banks average prime lending to their customers late year.

Take for instance, Wema bank’s manufacturing sector average prime lending rate rose to 32.50 per cent in 2024 from 27.50 per cent it closed 2023.  The reported 32.50 per cent was the highest in the banking sector last year.

Following Wema Bank was Unity Bank and Keystone Bank Limited with average prime lending rate of 32.00 per cent and 30.50 per cent, in 2024, respectively.

Analysts attributed the increase in average prime lending rate to the hike in MPR and severe macro economic challenges.

Investment Banker & Stockbroker, Mr.  Tajudeen Olayinka stated that banks review their lending rates on 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 MPR 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.

“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 MPR, to enable them arrive at their various prime lending rates which are usually reserved for their prime customers.

“But with all these recent circulars from CBN concerning idle deposits and foreign exchange windfalls, the market should prepare for a prolonged high interest rate regime. CBN doesn’t seem to have a good understanding of its recent destructive policies,” he added.

The Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose said, “Businesses need a lot of credit facilities to survive, but in an environment where the lending rate is astronomical, many enterprises, especially small and medium-scale, might find it extremely difficult to survive as their products will remain uncompetitive and the cost of production and the sale prices to consumers will remain high.”

He added that, “A hike in interest rate is often considered a manufacturers’ nightmare as it stifles productivity and expansion. A hike in interest rate slows down productivity, as manufacturers struggle to keep machinery in operations and pay salaries. Those who look forward to borrowing for expansion and production will have to shelve such ideas in the face of the high cost of accessing funds.”