Businesses Face Very High Cost of Credit as Lending Rates Climb to 46%

Companies across major sectors of the Nigerian economy are currently contending with extremely high borrowing costs as banks have increased their maximum lending rates to as much as 46 per cent. This challenging credit environment is placing significant strain on businesses’ ability to access affordable financing and expand operations, especially for those considered higher risk.

An in‑depth review of deposit and lending rates published by the Central Bank of Nigeria (CBN) highlights a sharp divergence between prime lending and maximum lending charges. Prime lending rates — typically available to low‑risk corporations with strong financial profiles — have largely stayed within a range of about 25 to 32 per cent. However, banks have simultaneously imposed much higher maximum lending rates on riskier borrowers and unsecured facilities, reflecting severe liquidity limitations and heightened risk‑based pricing.

Analysis indicates that small and medium‑sized enterprises (SMEs) and capital‑intensive industries such as oil and gas, construction, manufacturing, power and energy, and transport and storage face the steepest costs of credit. In many cases, these sectors have seen maximum lending thresholds climb to between 35 and 46 per cent — a dramatic jump that illustrates the cautious stance of commercial lenders.

Wide Variations in Lending Costs by Sector

The impact of rising credit costs is not uniform across the banking landscape. The oil and gas sector has recorded some of the highest maximum lending rates, with certain lenders charging up to 46 per cent for borrowers with weaker credit profiles.

In construction and real estate, several banks have set maximum rates in the 35 to 40 per cent range, while manufacturing firms have faced peak lending rates of about 38 per cent.

Meanwhile, businesses in the power and energy, as well as transportation and storage sectors, have encountered maximum interest charges between 36 and 39 per cent, particularly for long–term and unsecured credit facilities.

Deposit Rates Lag Behind Lending Costs

Despite the sharp rise in lending rates, banks have not equivalently increased the interest they pay on deposits. Savings account rates have remained relatively low at around 8.1 per cent, and demand deposit rates have stayed under 2 per cent, creating a significant gap between the cost of funds and the returns to customers.

Although time deposit rates have improved modestly in some banks — reaching up to 19 per cent — they still fall far short of the levels businesses must pay to borrow. This widening interest rate spread further discourages productive investment, constrains credit access, and ultimately dampens economic growth.

Broader Implications of Elevated Lending Costs

Economists and industry experts warn that persistently high borrowing rates can suppress business investment and reduce job creation. High cost of credit is widely cited as one of the main constraints on economic activity in Nigeria, alongside structural issues such as infrastructure deficits and security challenges. According to Reuters, the CBN recently cut its key monetary policy rate to 27 per cent to help ease borrowing costs, albeit gradually, as part of broader efforts to support the real economy amid cooling inflation.

The divergence between deposit and lending rates, coupled with tight liquidity in the banking system, could push more businesses toward informal financing sources — which often come with even higher costs and greater risk — unless systemic changes are made.