Nigerian businesses are facing challenges as commercial banks have raised borrowing costs, despite a significant reduction in the Central Bank of Nigeria's (CBN) benchmark interest rate. This unexpected turn of events has left many entrepreneurs disappointed as they hoped for more accessible loans following the CBN's cumulative cut of 450 basis points in the Monetary Policy Rate (MPR) over the past 13 months.

The CBN initiated its easing cycle in September 2025, lowering the MPR from 27.5% to 27%. This was followed by a further 50-basis-point cut in February 2026, bringing the rate down to 26.5%. The most substantial adjustment came in September 2026, when the MPR was slashed by 350 basis points to 23%, coinciding with a decline in headline inflation from 15.93% in May 2026 to 14.63% by September.

However, contrary to expectations, average prime lending rates have surged in eight out of eleven key sectors, including agriculture, manufacturing, and construction. An analysis by Financial Vanguard revealed that the borrowing rate for agriculture rose from 23.44% to 24.77%, while construction rates increased from 25.25% to 26.40%. Other sectors such as healthcare, real estate, and education also saw significant hikes in their borrowing costs.

Experts attribute this rise in borrowing costs to several factors, including banks' funding expenses, liquidity conditions, and perceived credit risks. Tunde Abioye, Head of Equity Research at Quest Merchant Bank, emphasized that lower benchmark rates do not automatically result in cheaper loans, especially when banks are cautious about borrowers' ability to repay.

Additionally, Nnamdi Nwizu, Co-Founder of Comercio Partners, pointed out that the increases in lending rates were not uniform across all banks. His analysis indicated that out of 174 comparable bank-sector observations, 65 saw a decline in lending rates, 79 remained unchanged, while only 30 experienced increases. This suggests that substantial adjustments by a few banks have skewed the overall averages.

The implications of these rising borrowing costs are significant. Businesses seeking loans for expansion, equipment purchases, and working capital are likely to experience prolonged financial pressure. Higher interest rates may deter investment and escalate operational expenses, which could, in turn, affect consumer prices.

Moreover, banks have also reduced deposit rates, leading to lower returns for savers, compounding the financial strain on households. The current situation underscores a troubling reality: despite the CBN's efforts to ease monetary policy, consistent relief for borrowers across Nigeria's economy remains elusive. As the CBN continues to monitor the situation, the disparity in lending practices among banks poses ongoing challenges for businesses and consumers alike.