CBN Rate Cut Yet to Reach Borrowers as Bank Lending Costs Stay High

High lending rates limit credit access

Nigeria’s latest interest-rate cut has yet to translate into a corresponding reduction in commercial lending rates, keeping borrowing costs elevated for businesses and households nearly a week after the Central Bank of Nigeria (CBN) lowered its benchmark rate to 23%.

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The CBN reduced the Monetary Policy Rate (MPR) by 350 basis points from 26.5% to 23% at its September 21–22 Monetary Policy Committee meeting, describing the adjustment as an operational reset designed to strengthen monetary-policy transmission.

However, the movement from the policy rate to actual borrowing costs remains limited. Recent industry assessments indicate that commercial borrowers continue to face substantially higher rates, raising questions about how quickly the CBN’s easing will reach the real economy.

Lending Rates Remain Above the CBN Benchmark

The gap between the 23% MPR and actual commercial lending rates remains significant.

The Manufacturers Association of Nigeria has warned that prime lending rates could remain around 27% to 30% even after the CBN's rate reduction. The association said the effectiveness of the policy would ultimately depend on whether banks pass the lower benchmark rate through to businesses.

Separate analysis reported by The Guardian also cited maximum lending rates of around 33% in July, while some high-risk manufacturing borrowers were reported to face rates between 50% and 60%.

This means the reduction in the policy benchmark does not automatically translate into a similar reduction in the price of commercial credit.

Why the MPR Cut Has Not Immediately Reduced Loan Costs

Commercial banks price loans using factors beyond the CBN's benchmark rate.

These include their cost of mobilising deposits, credit risk, liquidity requirements, operating expenses and expectations about inflation and market conditions.

The CBN's own rationale for the September adjustment focused on improving monetary-policy transmission, highlighting the importance of narrowing the gap between the policy signal and the rates faced by businesses and households.

Economists participating in a recent Macrostrat Nigeria webinar also pointed to the 45% cash reserve requirement for deposit money banks as one factor affecting the funds available for lending. They said full transmission of an MPR change can take several months rather than occur immediately.

Housing Market Faces a Delayed Benefit

The slow transmission of lower interest rates has particular implications for Nigeria's housing market.

Developers rely on credit to finance land acquisition, construction, infrastructure, building materials and working capital. High interest costs can increase the total cost of development, particularly for projects with long construction cycles.

Prospective homeowners face a similar challenge. Mortgage affordability depends on the interest rate attached to the loan, the repayment period and the borrower's income.

Consequently, a reduction in the MPR does not automatically make mortgages cheaper by the same 350 basis points.

The potential benefit to housing finance will depend on whether commercial banks and mortgage lenders eventually reduce their lending rates and whether those reductions are sustained.

Developers Still Face High Cost of Capital

For property developers, financing costs can affect project viability even when demand for housing remains strong.

A developer borrowing at a high commercial rate must factor interest expenses into the cost of completing and marketing a project. Where financing costs rise significantly, developers may delay construction, reduce project scale or adjust selling prices.

The effect can extend across the construction value chain because developers may also face higher financing costs for contractors, suppliers and working-capital requirements.

Lower borrowing costs could therefore improve project economics if the CBN's policy easing eventually reaches commercial credit.

However, financing is only one component of Nigeria's construction-cost challenge. Land, cement, steel, energy, transport and labour costs continue to influence development economics.

Businesses Call for Faster Transmission

Manufacturers have already urged commercial banks to reflect the CBN's reduced benchmark in their lending rates.

The Manufacturers Association of Nigeria said lower commercial borrowing costs are necessary for businesses to benefit fully from the policy adjustment. The association has argued that companies are affected more directly by the rates charged on their loans than by the MPR itself.

The broader concern is that a policy-rate reduction can have limited immediate effect if businesses continue to borrow at significantly higher rates.

This makes monetary-policy transmission a central issue for the real sector.

CBN’s Rate Reset Faces Its First Transmission Test

The September MPR reduction was substantially larger than the previous 50-basis-point cut in February, taking the benchmark from 26.5% to 23%.

The CBN said the latest adjustment was intended to reinforce the MPR as its primary policy signal and improve the effectiveness of monetary-policy operations.

The gap between the new benchmark and commercial lending rates therefore provides an early test of whether the intended transmission mechanism is working as expected.

For borrowers, the relevant measure is ultimately the interest rate attached to actual loans rather than the headline policy rate.

What Lower Lending Rates Could Mean for Real Estate

If commercial lending rates begin to fall, the effects could extend across Nigeria's property market.

Developers could gain access to cheaper construction finance, while mortgage institutions could potentially offer more affordable loans to homebuyers.

Lower financing costs could also improve the viability of projects targeted at middle-income households, where affordability remains constrained by the combination of high property prices and limited access to long-term mortgage credit.

For investors, lower interest rates could also influence capital allocation between fixed-income instruments and real estate, although investment decisions will continue to depend on rental yields, property values, construction costs and broader economic conditions.

Housing Affordability Depends on More Than the MPR

The delayed response of lending rates also highlights a broader issue for housing affordability.

Even if banks eventually reduce loan rates, households and developers will continue to face other cost pressures.

Construction materials, land, infrastructure, energy and labour all contribute to the final price of housing. A lower mortgage rate alone cannot resolve supply-side constraints or substantially reduce the cost of delivering new homes.

For this reason, the effect of monetary easing on the housing market will depend on the interaction between financing costs and wider development costs.

Outlook

The CBN's reduction of the MPR to 23% has created room for lower borrowing costs, but commercial lending rates have yet to fully reflect the policy adjustment.

For Nigeria's property sector, the critical issue is whether the lower benchmark eventually translates into cheaper construction finance and mortgage credit.

The coming months will provide a clearer indication of how quickly banks adjust their lending rates and whether improved monetary-policy transmission can translate into greater access to credit for businesses, developers and prospective homeowners.

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