MPR Reduction: LCCI charges CBN to monitor commercial banks on lending rates
The Lagos Chamber of Commerce and Industry (LCCI) has charged the Central Bank of Nigeria (CBN) to closely monitor commercial banks and other financial institutions on lending rates and credit allocation to productive sectors.
The LCCI also advised government and financial-sector institutions to strengthen credit guarantees, partial-risk guarantees, and other de-risking instruments that can encourage lending to viable SMEs without compromising prudent banking standards.
The LCCI’s charge came following the decision of the CBN Monetary Policy Committee (MPC) to reduce the Monetary Policy Rate (MPR) by 350 basis points, from 26.5 percent to 23 percent, at the conclusion of the MPC’s 307th meeting in Abuja.
According to LCCI, the decision represents a significant easing of monetary conditions and a welcome development for businesses, particularly micro, small, and medium-sized enterprises (MSMEs), which have been severely constrained by the high cost of credit.
The Director General of LCCI, Dr. Chinyere Almona, FCA, recognized that a lower policy rate can, through the monetary-policy transmission mechanism, reduce the cost of funds in the financial system, improve credit conditions, and support private-sector investment and economic activity. The Chamber therefore considers the rate reduction a positive signal for businesses seeking to finance working capital, investment, and expansion.
Dr. Chinyere Almona, FCA said “However, the reduction in the MPR should not be interpreted as an automatic reduction in the cost or availability of credit to businesses. The transmission from the policy rate to lending rates and actual credit allocation remains critical.
“Now we have a lower MPR, but the lending environment remains challenging. The reality confronting Nigerian businesses today is that the cost of borrowing is only one component of the overall business-risk equation. Businesses continue to operate under significant cost pressures arising from high energy costs, elevated logistics and transportation expenses, exchange-rate risks, rising input costs, infrastructure deficiencies, and the generally high cost of doing business.
“In addition, concerns about insecurity in parts of the country and uncertainties in the evolving political and policy environment can influence business confidence and lenders’ risk assessments. These factors have direct implications for financial institutions’ willingness to extend credit, particularly to SMEs. A commercial bank does not assess the affordability of credit solely based on the CBN’s policy rate. It also considers the borrower’s cash flow capacity, collateral, credit history, sectoral risks, business prospects, repayment capacity, and the broader operating environment.
Related Posts
“Consequently, unless the underlying business risks confronting enterprises are simultaneously addressed, the reduction in the MPR may have a limited impact on actual credit access for many SMEs. Credit transmission must be the next priority.”
The LCCI therefore called for deliberate measures to strengthen the transmission of monetary policy easing to the real sector. We encourage the CBN and financial institutions to ensure that the benefits of the lower policy rate are progressively reflected in more affordable and accessible credit for productive businesses, particularly SMEs.
The Chamber further charged government to ensure that many SMEs with viable business models remain unable to access formal credit because they lack conventional collateral. Greater use of cash-flow-based lending, credit scoring, movable assets, and other alternative forms of security should be encouraged.
While monetary easing must be accompanied by measures that reduce the structural risks confronting businesses, the high cost and unreliable availability of energy, excessive logistics costs, infrastructure deficiencies, multiple regulatory charges, and other barriers to competitiveness continue to weaken the capacity of businesses to generate the cash flows required to service loans.
The LCCI added that the impact of monetary easing will be more sustainable if increased liquidity is channeled towards productive activities—manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare, construction, and other sectors capable of expanding output and employment.
“The LCCI recognizes that the CBN is operating within a delicate balance between supporting economic growth and preserving price and financial stability. The rate reduction comes against a backdrop of improving inflation dynamics and other macroeconomic developments that have created greater room for monetary easing. Recent CBN projections have also anticipated that an easing of the monetary stance could support growth by lowering lending costs. The Chamber therefore views the current decision as an opportunity to strengthen the transmission of monetary policy to the productive economy.
“The Lagos Chamber of Commerce and Industry commends the CBN for taking a step towards easing financial conditions and supporting economic activity. At the same time, we urge policymakers not to regard the MPR reduction as sufficient in itself to resolve the financing constraints confronting Nigerian businesses.
“Monetary easing must be matched by measures that reduce lending risk and improve businesses’ capacity to borrow and repay. For the SME sector in particular, the objective should be to create an environment where lower policy rates translate into lower lending rates, increased credit supply, and greater access to appropriately structured finance.
“The current rate reduction provides an important window of opportunity. The priority now should be to ensure that this window translates into credit for businesses, investment in productive capacity, jobs, and sustainable economic growth,” Almona submitted.
