Post-recapitalisation: MPC member urges CBN to push banks for lower lending rates

A member of the Monetary Policy Committee (MPC) has called on the Central Bank of Nigeria (CBN) to take additional measures to reduce lending rates for households and businesses. Professor Murtala Sabo Sagagi made the recommendation in his personal statement following the 305th MPC meeting, noting that lending rates have remained high despite the successful completion of the banking sector recapitalisation exercise.

The MPC member stressed that stronger bank capital must translate into improved access to affordable credit for the real economy. He said while the banking sector has become more resilient, structural weaknesses continue to limit the transmission of monetary policy to lending rates.

What the MPC member is saying

Professor Sagagi said the CBN should strengthen oversight of how improvements in the banking sector are reflected in lending conditions for businesses and consumers. He stated: “The CBN should closely monitor the extent to which banking sector improvements and the current policy stance are being transmitted into affordable lending rates for households and businesses.”

He pointed to structural impediments in the credit transmission mechanism, including high risk premiums and limited credit bureau penetration, which require targeted macroprudential intervention. “Given the successful completion of the banking sector recapitalisation exercise, the CBN should proactively identify and address emerging post-recapitalisation risks, including potential shifts in risk appetite, credit concentration, and governance challenges in newly merged or enlarged institutions, to preserve financial system stability,” he added.

Sagagi also stressed the importance of preserving financial stability as banks adjust to their expanded capital base.

More insights from the MPC member

Beyond banking sector reforms, the MPC member said closer coordination between monetary and fiscal authorities is necessary to sustain recent gains in price stability. His statement warned that increased government spending associated with election cycles could fuel demand-driven inflation and erode recent progress in moderating prices. He recommended sustained collaboration between the CBN and fiscal authorities to promote a responsible and counter-cyclical fiscal spending framework.

The MPC member also noted that the major drivers of food inflation, including insecurity in farming communities, high transportation costs and poor rural infrastructure, require coordinated policy actions beyond monetary tightening. According to the statement, expanding access to affordable farm inputs such as fertiliser, improved seeds and pesticides, alongside investments in rural roads and security, would help reduce structural food inflation and reinforce the current disinflation trend.

The MPC member further advised the apex bank to maintain prudent exchange rate management by leveraging Nigeria’s stronger external reserves to cushion any short-term volatility arising from global energy market disruptions while sustaining policies that encourage export earnings and diaspora remittances.

What you should know

The CBN retained the Monetary Policy Rate (MPR) at 26.5% following the conclusion of its 305th meeting. The Cash Reserve Ratio (CRR) was maintained at 45% for commercial banks and 16% for merchant banks. The Standing Facilities Corridor was retained at +50/-450 basis points around the MPR. The apex bank also retained the CRR on non-TSA public sector deposits at 75%.

The CBN recently concluded the banking sector recapitalisation programme aimed at strengthening the financial system and improving banks’ capacity to support economic growth.

For Nigerian businesses and consumers, the core question remains whether the stronger capital base of banks will finally translate into lower lending rates. The MPC member has made it clear that without targeted intervention from the CBN, the gap between policy rates and actual borrowing costs may persist, keeping credit expensive for the real economy.