On 26 October, Nigeria's average maximum lending rate hit 32.62%—even though the CBN has been cutting its policy rate. This gap between what the central bank does and what banks actually charge is not a glitch. It is the operating reality for millions of Nigerians trying to access credit or move money.
For dollar earners and small-business owners, this matters more than it seems. When local credit stays expensive, businesses stay reliant on foreign currency. When dollar demand stays high, the naira stays under pressure. Understanding why banks ignore CBN rate cuts is the first step to protecting your dollar position.
The Gap Between Policy and the Counter
The CBN's benchmark rate and what banks charge are two different things. In September, the CBN cut rates by 2.3 percentage points to 26.75%. By late October, it had cut again. Yet the average maximum lending rate—the ceiling most banks charge retail customers—stayed stuck around 32.62%.
Why? Banks argue that their cost of funds is still high. Even though the CBN's policy rate is lower, banks' own borrowing costs (from deposits, interbank lending, and refinancing) have not fallen as fast. The spread between what banks pay for money and what they lend it out for remains wide.
This is not unique to Nigeria, but it is more pronounced here. In mature markets, rate cuts pass through to borrowers within weeks. In Nigeria, the lag can be months—or the pass-through never happens at all.
Why Banks Resist the Cut
Three forces keep lending rates high even as the policy rate falls.
First, deposit costs are sticky. Banks compete fiercely for deposits, and they have already promised savers attractive rates. When the CBN cuts, banks cannot immediately cut what they pay depositors—that would trigger withdrawals. So they keep lending rates high to maintain their margin.
Second, credit risk is rising. Inflation is still eating household incomes. Defaults are climbing. Banks are charging higher rates partly to cover expected losses, not just because the CBN told them to.
Third, the CBN itself is mixed messaging. While the policy rate has fallen, the CBN's regulatory requirements—cash reserve ratios, liquidity ratios, and capital requirements—have stayed tight or tightened. These requirements force banks to hold expensive capital, which they pass on to borrowers.
What This Means for Your Dollar
High local credit costs have a direct effect on dollar demand. When naira loans are expensive, businesses that need working capital look abroad. They borrow in dollars or demand dollars to pay suppliers. This keeps pressure on the naira and keeps your dollar premium high.
For freelancers and remote workers, this is a tailwind: your dollar earnings stay valuable in local terms. But it also signals that the broader economy is not healing. The CBN's rate cuts are not trickling down to real businesses. That means the naira's underlying weakness is not about to reverse.
What to Watch
The real test is whether banks start cutting their lending rates in November and December. If they do not, it means the CBN's cuts are cosmetic—designed to look dovish without actually easing credit. If they do cut, watch how fast: a slow pass-through (over 2–3 months) still leaves you in a high-rate environment.
For dollar holders, the key signal is the naira's stability. If the naira strengthens despite high local rates, it means capital is flowing in and the economy is healing. If the naira stays weak or slides further, it means the rate cuts have not changed the underlying picture: Nigeria's credit system is still broken, and dollars are still the safer bet.
LCash lets you hold and move dollars without waiting for the banking system to catch up. But the real story is not about your wallet—it is about whether Nigeria's financial system can actually lower the cost of credit for the real economy.