Bankers’ controversial view of the contribution of high lending rates to the outrageous cost of production and consequent spiraling inflation in Nigeria took a turn for the worse last week when Godwin Emefiele, the immediate-past governor of the Central Bank of Nigeria (CBN) appeared in Arise Television Morning Show.
Rufai Oseni, host of the programme, asked the former CBN governor; “Nigerians are getting poorer while bank profits continue to reach record highs. Godwin Emefiele, many people are losing their homes because of high interest rates – do you consider that fair”?
Emefiele retorted; “We understand these are difficult times, but credit is a tool for growth. Nigerians need to learn how to manage their finances better and save more. That’s how the system works.
Seun Akinbaloye, the anhor of the progamme, shot back; “Save? …With inflation this high saving is a losing strategy from the start…You are blatantly lying to people’s faces and deceiving the entire country”.
A shouting match erupted between Emefiele and the reporter. Emefiele lost his cool and walked out of the programme with the cameras rolling.
The former CBN governor sees nothing wrong with Nigeria’s exploitative lending rates. He defended it as a “necessary tool for growth”.
That probably explains why banks’ profits are now in 13 digits while that of manufacturers are in low nine digits. Banks pay two per cent as deposit rate and lend the money at 35 to 46 per cent.
That is the “necessary tool for growth”.
Lending rate is a very controversial issue in Nigeria. Banks and manufacturers hold sharply contradictory views on the subject. Banks, as recently explained by Emefiele, believe that high lending rate is a “necessary tool for growth”. That is where they make their bumper profit.
Manufacturers argue vehemently that the high cost of funds escalates production cost and fuels inflation.
Some years ago, I engaged the then managing director of Union Bank on the topic at a time when manufacturers were complaining about lending rates as they do now.
The MD’s view was that the manufacturers were blaming the wrong persons by fingering lending rates as the cause of high production cost.
Emefiele confirmed that the view of the then managing director of Union Bank is what still prevails today among bankers.
The truth, however, is that even the International Monetary Fund (IMF) believes that lending rate is insidiously manipulated by banks in Nigeria.
The IMF recently complained that banks were openly reluctant to implement the effect of monetary policy rate (MPR) reduction by the CBN on lending rates.
It argued that a 100-basis point increase in MPR would instantly trigger a 180-basis point increase in lending rates. Conversely, a similar reduction in MPR would induce a paltry 30-basis point reduction in lending rates.
While the prime lending rate (the rate at which banks lend money to credit-worthy conglomerates), remains at 19.1 per cent, the Manufacturers Association of Nigeria (MAN) recently complained that banks lend money at anything from 27 to 36 per cent to helpless fund users.
That is a moderate rate compared to the rate at which banks lend to micro, small and medium enterprises (MSMEs). Firms in that category access funds at anything from 35 to 46 per cent.
The strange thing about the outrageous rates at which MSMEs access funds from banks is that they (MSMEs) create more jobs than the conglomerates that access funds at relatively lower rates.
Two major factors are primarily responsible for the exploitative lending rates in Nigeria. The first is the high monetary policy (MPR) imposed on the economy by spiraling inflation.
With inflation rate spiraling above 34 per cent in 2024, CBN raised MPR to 27 per cent in a desperate bid to keep MPR pretty close to inflation rate. That makes economic sense because a yawning gap between lending rates and MPR would discourage savings and starve banks of funds. But inflation has since receded.
The next factor behind the exploitative lending rates is the wide margin between MPR and lending rates.
There was a time when the margin between lending rates and MPR was four per cent.
Unfortunately, the margin has been allowed to remain as wide as the Pacific Ocean, thus worsening lending rates crisis. Currently, the margin between MPR and lending rates is close to 20 per cent.
In February, 2026, the United States of America and Israel attacked Iran in a failed attempt at regime change.
Iran responded to the attack by blocking the strategic Strait of Hormuz which is the route through which 40 per cent of global crude oil is shipped to consumers in Europe and North America.
That development pushed crude oil prices from $65 to $120 per barrel. The price of a barrel of Bonny Light, Nigeria’s coveted light, sweet crude, crossed the $135 threshold.
Consequently, the pump price of petrol rose from N860 to N1,400 per litre in Nigeria.
Headline inflation has been surging for the three months that the war kept crude oil price above $100 per barrel.
Food inflation crossed the 16 per cent threshold as the cost of evacuating food from Nigeria’s food producing rural communities to the markets in urban areas escalated.
That, precisely, is why CBN keeps MPR at 26.5 per cent. CBN governor, Yemi Cardoso, recently rose to a spirited defence of the high MPR.
He argued that the MPC voted unanimously to keep MPR at 26.5 per cent to tame the surging inflation.
The exploitative lending rates are partially responsible for the spiraling inflation rate which depletes the value of the naira in consumers’ pockets and price goods beyond the reach of millions toiling below poverty line.
High lending rate is no one’s friend. It is taking a toll even on the bumper profit of banks.
The rate of unserviceable loans is inching up as high lending rates make it extremely difficult for loans beneficiaries to service their loans. Everyone is losing from high lending rates.
