THE Lagos Chamber of Commerce and Industry (LCCI) has called on banks to translate the Central Bank of Nigeria (CBN)’s latest interest rate cut into cheaper and more accessible credit for businesses, particularly small and medium-sized enterprises.
The chamber made the call after the CBN Monetary Policy Committee cut the Monetary Policy Rate (MPR) by 350 basis points from 26.5 percent to 23 percent at its 307th meeting on Tuesday.
The reduction marks a significant easing of monetary policy after businesses faced high borrowing costs that constrained working capital, investment and expansion.
However, the LCCI said the lower policy rate would not automatically translate into cheaper loans, warning that the transmission of monetary easing to actual lending rates and credit supply remains critical.
“The transmission from the policy rate to lending rates and actual credit allocation remains critical,” the chamber said in a statement signed by its Director-General, Dr Chinyere Almona.
According to the LCCI, businesses continue to contend with high energy, logistics and transportation costs, exchange rate risks, rising input costs and infrastructure deficiencies, all of which increase the risks associated with lending to the private sector.
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It said insecurity and uncertainties around the policy environment could further affect business confidence and banks’ assessment of borrowers.
The chamber noted that banks consider several factors beyond the CBN’s policy rate when pricing loans, including borrowers’ cash flows, collateral, credit history, sector risks and repayment capacity.
It therefore urged the CBN to closely monitor banks’ response to the monetary easing, particularly changes in lending rates and the flow of credit to productive sectors.
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The LCCI also called for stronger credit guarantees, partial-risk guarantees and other de-risking mechanisms to encourage banks to lend to viable small businesses without weakening prudential standards.
It said banks should also make greater use of cash-flow-based lending, credit scoring, movable assets and other alternative forms of collateral to widen access to formal finance for businesses that lack conventional security.
The chamber further urged the government to tackle structural constraints that raise operating costs and weaken businesses’ ability to generate cash flows needed to service loans.
It identified unreliable and expensive electricity, logistics costs, infrastructure gaps and multiple regulatory charges as some of the factors undermining business competitiveness and access to credit.
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The LCCI said the impact of monetary easing would be more sustainable if increased liquidity was channelled into sectors capable of expanding output and employment, including manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare and construction.
The chamber acknowledged that the CBN must balance economic growth with price and financial stability, but said recent improvements in inflation dynamics had created greater room for monetary easing.
It described the rate cut as an opportunity to improve the transmission of monetary policy to the real economy.
“The reduction in the MPR should not be interpreted as an automatic reduction in the cost or availability of credit to businesses,” the LCCI said.
It added that monetary easing needed to be accompanied by measures that reduce lending risks and strengthen businesses’ capacity to borrow and repay.
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For the SME sector, the chamber said the immediate priority should be ensuring that the lower policy rate results in lower lending costs, increased credit supply and better access to appropriately structured financing.
“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.
