Interest rate cut: LCCI calls for cheaper loans, more credit to businesses

The Lagos Chamber of Commerce and Industry (LCCI) has urged the Central Bank of Nigeria (CBN) and financial institutions to ensure that the 350-basis-point reduction in the Monetary Policy Rate (MPR) translates into lower lending rates and increased credit access for businesses, particularly micro, small and medium-sized enterprises (MSMEs).

The Chamber gave the warning while welcoming the decision of the CBN Monetary Policy Committee (MPC) to reduce the MPR from 26.5 per cent to 23 per cent, describing the move as a positive signal for businesses constrained by the high cost of credit.

However, the LCCI cautioned that a lower policy rate does not automatically translate into cheaper or more accessible credit, stressing that the transmission of monetary policy easing to lending rates and actual credit allocation remains critical.

The Chamber said the reduction could lower the cost of funds within the financial system, improve credit conditions and support private-sector investment, working capital financing and business expansion.

It noted that the lending environment remained challenging despite the reduction in the benchmark rate, as businesses continue to contend with high energy and logistics costs, exchange-rate risks, rising input costs, infrastructure deficiencies and the overall high cost of doing business.

According to the LCCI, insecurity in some parts of the country, as well as uncertainties surrounding the evolving policy environment, could also affect business confidence and lenders’ assessment of credit risks.

It explained that commercial banks do not determine the affordability and availability of credit based solely on the CBN’s policy rate, but also consider borrowers’ cash flows, collateral, credit history, sectoral risks, business prospects and repayment capacity.

“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 Chamber said.

The LCCI called on the CBN to closely monitor the response of commercial banks and other financial institutions to the easing of monetary conditions, particularly changes in lending rates and credit allocation to productive sectors.

It also urged the government and financial-sector institutions to strengthen credit guarantees, partial-risk guarantees and other de-risking instruments that could encourage lending to viable SMEs without compromising prudent banking standards.

The Chamber advocated greater use of cash-flow-based lending, credit scoring, movable assets and other alternative forms of security to enable viable SMEs without conventional collateral to access formal credit.

It further called for measures to address the structural challenges that increase business risks, including unreliable and expensive energy, high logistics costs, infrastructure deficiencies and multiple regulatory charges.

The LCCI said monetary easing would have a more sustainable impact if increased liquidity was directed towards productive sectors such as manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare and construction.

The Chamber acknowledged that the CBN was balancing the need to support economic growth with the preservation of price and financial stability, noting that improving inflation dynamics and other macroeconomic developments had created room for monetary easing.

It, therefore, described the rate cut as an opportunity to strengthen the transmission of monetary policy to the productive economy.

The LCCI said the MPR reduction should not be viewed as sufficient to resolve the financing constraints confronting Nigerian businesses, particularly SMEs.

It stressed that monetary easing must be accompanied by measures that reduce lending risks and improve businesses’ capacity to borrow and repay.

The Chamber said the ultimate objective should be to ensure that lower policy rates translate into lower lending rates, increased credit supply, investment in productive capacity, job creation and sustainable economic growth.