LCCI urges banks to lower lending rates after CBN cut

The Lagos Chamber of Commerce and Industry has urged commercial banks to lower lending rates and expand credit to businesses following the Central Bank of Nigeria’s 350-basis-point reduction in its benchmark interest rate.

The chamber said the rate cut would have limited impact on businesses if banks failed to transmit the reduction in the Monetary Policy Rate to the cost and availability of credit.

The CBN Monetary Policy Committee reduced the MPR from 26.5 per cent to 23 per cent at its 307th meeting on Tuesday, marking a major shift towards monetary easing.

The LCCI said the decision had created an opportunity to ease the financing burden on businesses, but warned that cheaper policy funding would not automatically translate into cheaper bank loans.

“The transmission from the policy rate to lending rates and actual credit allocation remains critical,” Director-General of the LCCI, Chinyere Almona, said in a statement.

For businesses, particularly small and medium-sized enterprises, the chamber said the immediate test of the rate cut would be whether banks respond with more affordable and accessible financing.

It said banks still price loans based on factors including borrowers’ cash flows, collateral, credit history, sector risks and repayment capacity, meaning lending rates could remain elevated despite the reduction in the benchmark rate.

The LCCI said high operating costs were also increasing the risks faced by lenders and making it more difficult for businesses to generate sufficient cash flows to service loans.

It identified energy, transportation, logistics, exchange-rate volatility, input costs, infrastructure deficiencies and insecurity among the major constraints affecting businesses.

The chamber therefore called on the CBN to monitor the response of banks to the rate cut, particularly the movement in lending rates and the flow of credit to productive sectors.

It also urged the government and financial institutions to strengthen credit guarantees, partial-risk guarantees and other de-risking mechanisms that could encourage lending to viable small businesses.

The LCCI said banks should expand the use of cash-flow-based lending, credit scoring, movable assets and other alternative forms of security to enable businesses without conventional collateral access formal credit.

According to the chamber, reducing the risks associated with lending would be essential to ensuring that monetary easing reaches the real economy.

It also called for action to reduce structural costs confronting businesses, including unreliable electricity, high logistics expenses, infrastructure gaps and multiple regulatory charges.

The LCCI said increased liquidity should be directed towards sectors capable of raising production and employment, including manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare and construction.

While acknowledging the CBN’s need to balance growth with price and financial stability, the chamber said improving inflation conditions had provided room for monetary easing.

It described the MPR reduction as an opportunity to strengthen the transmission of monetary policy to businesses and productive activity.

“The reduction in the MPR should not be interpreted as an automatic reduction in the cost or availability of credit to businesses,” the chamber said.

The LCCI said the priority should now be to ensure that monetary easing results in lower borrowing costs, increased credit supply, stronger investment and improved access to appropriately structured financing for SMEs.

“The priority now should be to ensure that this window translates into credit for businesses, investment in productive capacity, jobs, and sustainable economic growth,” it said.