Credit to Nigeria’s private sector dropped by N1.11 trillion in the first quarter of 2025, according to newly released data from the Central Bank of Nigeria (CBN).
Although the figure for March edged up slightly to N76.27 trillion, a 0.03% increase from N76.25 trillion in February, it remains well below the N77.38 trillion recorded in January.
The drop in credit reflects the impact of a persistently hawkish monetary policy stance, which has seen the CBN raise the benchmark interest rate to 27.75%, the highest in nearly two decades, in a bid to rein in inflation and stabilize the naira.
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This cautious lending environment is expected, say analysts, as banks weigh lending risks more critically.
Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE) has warned that the current monetary policy environment is making credit more expensive, dampening private sector borrowing.
Businesses are struggling with higher operating costs, and that’s leading to weak demand for credit, he said.
Sectoral Flow of Credit
While the CBN has yet to publish detailed sectoral breakdowns for March, its earlier January 2025 Economic Report offers insight.
According to the report: “In terms of sectoral distribution, the services sector maintained the largest share at 54.87 per cent, followed by the industry sector at 40.02 per cent, while the agriculture sector accounted for 5.11 percent.”
The marginal rise in agriculture’s credit share, from 4.82% in December 2024, remains insufficient, experts say, given the sector’s strategic importance to food security and rural employment.
Why the Drop Matters
Credit to the private sector is a key driver of investment, job creation, and overall economic growth. A contraction in lending may signal not just reduced confidence in the economy, but also structural frictions that hinder the ability of firms to access affordable capital.
Analysts point to a combination of demand-side and supply-side constraints. On the one hand, businesses are reluctant to borrow at high interest rates; on the other, banks are becoming more risk-averse, partly due to concerns over rising non-performing loans (NPLs) and limited access to long-term funding.
An investment analyst at ARM Securities said the rate hikes by the CBN, though necessary from a price stability standpoint, have created a credit crunch that’s hurting small and medium-sized enterprises.
Limited Impact of Government Intervention
While the federal government has launched initiatives like the Nigerian Consumer Credit Corporation (CrediCorp) to improve access to credit, experts say such programs are yet to gain meaningful traction. The CrediCorp scheme is intended to support middle-income Nigerians in accessing loans for consumer and asset purchases, but it does little to address the broader issues of business financing.
The sustained drop in credit across Q1 coincides with troubling macroeconomic indicators. Inflation reached 24.23% in March, as prices of food and services remain elevated.
Without improved access to finance, businesses, especially in the manufacturing and agricultural sectors — will struggle to scale operations or hire workers. Economists warn that unless there’s a policy shift, Nigeria’s GDP growth could be weaker than the 3.1% projection issued by the International Monetary Fund in January.