Nigeria’s Private Sector Credit Crunch: A Sign of Deeper Issues?

Nigeria’s private sector is feeling the pinch. New data reveals credit access slumped to an 18-month low in September 2025. Banks are lending less, and businesses are struggling. Could this slowdown signal larger economic turbulence?

Central Bank of Nigeria figures highlight a modest 4.35% dip in Private Sector Credit Extension (PSCE), landing at N72.5 trillion. This figure pales in comparison to previous months and highlights a concerning trend. This also places Nigeria’s credit-to-GDP ratio far below both sub-Saharan African and global averages. That’s quite a gap.

Muda Yusuf at CPPE points to the high cost of borrowing and tight credit conditions. Interest rates remain stubbornly high, even after recent cuts, and loan tenors are short. Businesses are turning to commercial paper, a sign that the banking system may not be fulfilling its role.

The central bank reduced the benchmark interest rate and Cash Reserve Ratio (CRR), aiming to boost lending. The intent is there, but are these measures enough?

Olusegun Sonowo, a banking executive, paints a less optimistic picture. He sees the current credit environment as one of the most restrictive in years. Currency fluctuations and liquidity sterilization through the CRR are reshaping banks’ lending behavior. Locking up a big chunk of banks’ funds with the CRR, as he explains, inevitably makes them more selective about who they lend to. Banks naturally become cautious.

The impact of this CRR policy goes beyond just the numbers; it affects how banks manage their assets and liabilities. It pushes them to be more risk-averse. The squeeze on liquidity impacts their ability to fuel economic growth. This creates a cautious, even constrained, financial system.

Interestingly, while private sector credit is down, money supply (M3 and M2) is up, albeit at a slower pace than before. Government borrowing is also down year-on-year. This mixed bag of data raises questions.

Having observed similar patterns in other emerging markets, I’m skeptical that simply tweaking interest rates or the CRR will solve this problem. The underlying issues may be more structural. Nigeria needs a deeper look at the risk environment, and possibly, more innovative financing solutions to truly unlock credit for its private sector.

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