As the Monetary Committee Members (MPC) of the Central Bank of Nigeria (CBN) retained interest rate at 27.50 per cent, the average maximum lending rate in Nigeria’s banking sector dropped to 29.31 per cent in July 2025, making it the lowest rate since July 2024-28.89 per cent.

Maximum lending rate represents the average of the highest lending rates charged by deposit money banks in Nigeria and it is influenced by the CBN’s monetary policy adjustments.

Inflation rate, according to National Bureau of Statistics (NBS) had dropped to 21.88 per cent as of July 2025 from 24.48 per cent January 2025, while Naira at the Nigerian Foreign Exchange Market (NFEM) closed July 2025 at N1,534 against the dollar from N1,477.99 against the dollar January 31, 2025.

According to the CBN’s money market indicator, the reported 29.31 per cent average maximum lending in July 2025 is the lowest so far this year.

With interest rate at 27.50 per cent, commercial banks typically add a margin of 300–500 basis points above the interest rate to cover credit risk, inflation, and operational costs.

THISDAY analysis of CBN revealed that the 30.50 per cent in February 2025 was the highest average maximum lending, followed by 30.19 per cent reported in March 2025.

 In a bid to tackle inflation and stabilise the Naira at the foreign exchange market, the CBN since November 2024 retained its rate at 27.50 per cent from 27.25 per cent

In December 2024, the maximum lending rate was 29.71 per cent, when the MPC voted to retain the MPR at 27.50 per cent

The steep increase in the interest rate has sparked concerns regarding the potential impact on the cost of credit for businesses already facing economic hardships due to foreign exchange reforms and fuel subsidy removal by the federal government.

Further analysis of the 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.

Early in 2024, average maximum lending rate stood at 27.07 per cent when MPR was at 18.75 per cent, while in March 2024, it closed at 29.38 per cent when the MPR stood at 24.75 per cent in March 2024.

When the MPR increased from 26.75 per cent in August 2024 to 27.25 per cent, the average maximum lending rate also rose from 29.93 per cent in August 2024 to 30.21 per cent in September 2024.

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 13.5 per cent

According to the data, the average prime lending rate increased to 18.54 per cent in July 2025 from 18.19 per cent in June 2025.

According to THISDAY research, the reported 18.54 per cent average prime lending rate is the highest so far in 2025. 

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 11.13 per 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 stabilise the local currency at the foreign exchange market.

However, analysts have predicted a further increase in the average maximum lending rate despite a stable foreign exchange market and double-digit inflation rate.

The unanticipated rise in MPR in 2024 impacted the banking sector lending rate as the CBN sustained pressure in tackling inflation.

This unprecedented move has not only set the interest rate at its highest level to date but also reflects the CBN’s determined effort to address the persistent pressure on foreign exchange and inflation.

Commenting, Investment Banker & Stockbroker, Mr.  Tajudeen Olayinka said that banks review their lending rates on a 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 interest rate 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 interest rate, to enable them arrive at their various prime lending rates which are usually reserved for their prime customers,” he said.

On his part, the Vice President of Highcap Securities, Mr. David Adnori explained that commercial banks review their lending rates regularly, subject to their respective cost of funds and the direction of interest rate, not necessarily using interest rate as a distinct value.

He stated that the interest rate gives them the direction of interest rates in the market and the price they will pay if they have to borrow from or lend to CBN.

On the interest rate outlook for 2025, analysts at Cordros Research in a report titled, ‘Nigeria in 2025. Reform to Recovery: Navigating the Rebound’, said, “As we have stated in our domestic macros report, we think the MPC is set to pause its rate-hiking cycle as inflation begins to moderate in 2025, owing to the high statistical base effect and reduced naira volatility.

“Furthermore, the anticipated reduction in interest rates in the advanced economies will reduce the pressure on the MPC to raise interest rates further. However, the still elevated inflation risks will likely induce the MPC to hold the policy rate steady for a longer period to consolidate gains of previous rate hikes while achieving a lower negative real rate of return.”

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