Nigeria’s private sector credit system is showing signs of stress under the Central Bank of Nigeria’s (CBN) prolonged tight monetary policy, even as liquidity indicators and external reserves strengthen.
Fresh CBN data reveal a financial system caught between stabilisation and the urgent need to unlock growth-supporting credit—setting the stage for a possible turning point in 2026.
Private sector credit extension (PSCE) rose only 0.3% month-on-month to ₦74.6 trillion in November 2025. On a year-on-year basis, however, PSCE fell 2%, underscoring the impact of high interest rates and restrictive liquidity on borrowing and investment.
The CBN’s hawkish stance—designed to rein in inflation, stabilise the naira, and restore confidence—has raised the cost of funds. Banks have become more selective in lending, while businesses defer expansion plans.
Banking System Under Pressure
PSCE data cover Nigeria’s entire credit ecosystem, including deposit money banks (DMBs), development finance institutions, microfinance banks, and non-interest banks.
DMBs remain dominant, accounting for 69% of total private sector credit.
CBN’s Quarterly Statistical Bulletin shows DMB lending at ₦58.2 trillion in June 2025, a modest 4% year-on-year growth.
The gap of ₦16.5 trillion between this figure and broader PSCE reflects the growing role of non-DMB institutions, whose cautious expansion contrasts with commercial banks’ restrained risk appetite.
Paradoxically, monetary aggregates are rising. Broad money (M3) and narrow money (M2) both grew 13% year-on-year to about ₦123 trillion.
Net foreign assets surged 115% to ₦37.4 trillion, while external reserves climbed $4.6 billion to $45.5 billion in 2025.
These gains highlight Nigeria’s stronger external position, driven by foreign inflows and remittances. Yet, liquidity has not translated into lending, as risk perception and policy clarity remain critical.
Government Credit Trends
Public sector lending fell 33% year-on-year, reflecting efforts to curb deficit monetisation. However, government credit rose 6% month-on-month to ₦26.4 trillion, showing episodic fiscal pressures.
While reduced government borrowing theoretically frees space for private lending, tight monetary conditions and cautious banks have limited the benefits.
Manufacturers, traders, and service providers face compressed margins and delayed investments due to elevated lending rates. SMEs, in particular, rely more on internal cash flows, development finance institutions, or informal credit markets.
Economists argue that while the short-term pain is real, sustained macroeconomic stability could eventually lower risk premiums and revive credit growth.
Analysts expect a softer inflation outlook and improved business conditions to give the CBN room to ease policy rates and liquidity constraints in 2026.
With recapitalised banks holding stronger balance sheets, longer-tenor loans and deeper credit penetration could follow.
If easing is carefully sequenced and anchored on disinflation, private sector credit growth may rebound, supporting output expansion, job creation, and economic recovery.
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