Private Sector Lending Drops to Lowest Level in 18 Months

Editor’s Note: This article was originally written on November 25, 2025 and is being republished here for archival purposes.

Credit to Nigeria’s private sector has slid to an 18-month low, signaling growing stress in the banking system and weakening access to finance for businesses. According to recent data from the Central Bank of Nigeria (CBN), tighter liquidity conditions, heightened risk aversion among banks and rising borrowing costs are curbing credit growth just when the private sector needs it most.

Key Trends

1. Sharp Drop in September 2025
   CBN data shows that private-sector credit (“Private Sector Credit Extension” or PSCE) fell to N72.5 trillion in September 2025, down from N75.8 trillion in August 2025 and other higher levels earlier in the year.
   • This decline comes despite a recent policy rate cut by the CBN, indicating poor transmission of monetary easing into business lending.
   • BusinessDay reported that lenders’ risk appetites have diminished, while banks are facing a “deepening liquidity squeeze.”
2. Credit Slipping Despite Abundant Liquidity
   Even though money supply (M3) is growing, credit to the private sector is not keeping pace. For instance, in May 2025, credit slipped slightly to N77.83 trillion, while broad liquidity surged.
3. Multiple Monthly Declines in 2025
   • In June 2025, credit dropped again to N76.12 trillion, marking the fourth decline that year.
   • Earlier in January 2025, credit had already declined by about N1.07 trillion (a 1.41% drop), a move attributed to the CBN’s tight monetary policy.

Underlying Causes

• High Interest Rates: A significant factor behind the credit slowdown is the elevated Monetary Policy Rate (MPR), which increases the cost of borrowing.
• Risk Aversion and Liquidity Constraints: Banks are reportedly more cautious, reducing risk exposure amid tighter funding conditions.
• Crowding-Out by Government Borrowing: With government borrowing on the rise, banks may find lending to the government safer and more attractive than extending credit to private businesses.
• Macroeconomic Pressures: Persistent inflation and foreign-exchange uncertainty weigh on businesses, making them reluctant to take on more debt.

Economic Implications

• Growth Risk: The drop in private sector credit could undermine investment and job creation. As businesses face the dual challenge of higher costs and limited access to funding, their capacity to expand may be constrained.
• Credit-GDP Gap: A declining credit-to-GDP ratio could signal weakening financial intermediation. If private-sector credit doesn’t pick up, economic growth may increasingly depend on public-sector activity.
• Policy Transmission Challenge: The limited pass-through of monetary easing to credit suggests structural frictions in the banking system — such as risk assessment frameworks, regulatory constraints, or capital base issues.
• Banking Sector Strain: Reduced lending to the private sector could compress banks’ long-term returns, especially if they rely heavily on short-term or government-linked instruments.

What Could Help Reverse the Trend

1. Targeted Credit Support: The government and development finance institutions might need to partner more actively to de-risk lending to the real economy — especially SMEs.
2. Regulatory Adjustments: Policymakers could examine whether banking regulations (e.g., capital or reserve requirements) are overly constraining banks from lending.
3. Monetary Policy Easing with Safeguards: While cutting rates is helpful, more must be done to ensure that reduced rates translate into lending, not just higher liquidity.
4. Incentivizing Long-Term Lending: Encouraging banks to offer longer-term loans might improve productive investment, if banks can manage the associated risks.
5. Credit Guarantee Schemes: Guarantee facilities could boost banks’ willingness to lend by sharing risk on priority sectors.

Conclusion

The decline in credit to Nigeria’s private sector to an 18-month low is a worrying signal. Despite signs of monetary easing, the private sector remains starved of finance. Without urgent policy interventions to restore lending flows, businesses may struggle to invest, grow, and create jobs — putting the broader economic recovery at risk.

References

1. BusinessDay, Credit to private sector slows to 18-month low, Wasiu Alli & Chima Chima.
2. Nairametrics, Credit to private sector falls to N72.5 trillion in September despite CBN rate cut.
3. Nairametrics, Credit to Private Sector slips marginally to N77.83 trillion in May 2025 despite surging money supply.
4. Nairametrics, Private sector credit falls to N76.12 trillion in June — fourth decline in 2025.
5. Nairametrics (via TheNewsroom), Credit to private sector declined by N1.07 trillion in January amidst tightened interest rates.
6. Economic Confidential, Bank Credit to Private Sector Declines to N75.83tn.
7. ThisDayLive, Credit to Private Sector Drops by N519.5bn YtD Amid Unstable FX, Inflation.
8. World Bank, Nigeria Development Update, June 2023 – real credit to private sector trends.