The aggressive interest rate hikes implemented by the Central Bank of Nigeria (CBN) have begun to bite, dragging the pace of lending to the private sector down to its lowest level in five years.
Data from the CBN show that growth in Deposit Money Banks (DMBs) credit to the private sector declined sharply to 0.89 percent in 2025, down from 44.29 percent in 2024 and 33.98 percent in 2023. This represents the weakest growth rate since 2020, compared with 18.59 percent recorded in 2022 and 13.07 percent in 2021.
The slowdown is largely linked to the CBN’s maintenance of high benchmark interest rates, which has increased borrowing costs across the economy. Elevated interest rates have reduced appetite for loans, particularly among small and medium-sized enterprises, which are more sensitive to financing costs and credit conditions.
Analysts at Quest Merchant Bank said elevated interest rates remain a key factor behind the deceleration in credit growth to the real economy. According to them, “a major factor underscoring the contraction in credit growth to the real economy is elevated interest rates following the restrictive monetary policy stance of the monetary authorities.”
Despite the slowdown in growth, overall credit to the private sector has expanded significantly over the longer term. CBN data indicate that between 2020 and 2025, credit to the private sector rose by 161.74 percent to N911.79 trillion in 2025, from N348.36 trillion in 2020, underscoring the continued expansion of banking sector balance sheets over the period.
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The latest monetary and credit data from the CBN show that private sector credit extension expanded by 1.6 percent month-on-month to N75.8 trillion as at end-December 2025, an improvement from the 0.3 percent month-on-month growth recorded in the preceding month. However, on a year-on-year basis, private sector credit extension declined by 2.8 percent, marking the second consecutive monthly decline and highlighting the lingering effects of restrictive monetary conditions.
Quest Merchant Bank analysts noted that the private sector credit extension figures capture lending across the entire banking system, including state-owned development finance institutions such as the Bank of Industry, as well as smaller credit providers such as microfinance banks and non-interest banks. Lending by deposit money banks accounts for approximately 69 percent of the total credit figure.
Using the narrower measure of private sector credit, total credit by deposit money banks, which covers commercial, merchant and non-interest banks rose by 4 percent year-on-year to N58.2 trillion as at the end of June 2025, according to the CBN’s second-quarter 2025 Statistical Bulletin. The difference between this figure and total private sector credit extension, estimated at about N17.9 trillion, is partly attributable to reporting lags. However, analysts said a significant portion reflects credit extended by the Central Bank through its liquidity support facilities and development finance intervention programmes.
A smaller share of the gap also reflects lending by other financial institutions, including microfinance banks and mortgage banks. While private sector credit extension contracted on a year-on-year basis, broad money indicators showed expansion, with both M3 and M2 increasing by 9.8 percent year-on-year to N124.4 trillion. The narrow gap between the two aggregates reflects other liquid liabilities, mainly Open Market Operation bills.
The data further show a sharp rise in credit to the government, which increased by 26 percent year-on-year to N34.2 trillion. This was largely driven by an acceleration in government credit growth of 29.9 percent month-on-month in December. Meanwhile, net foreign assets declined by 1 percent year-on-year, reflecting the combined impact of a 14 percent increase in net domestic assets and a 9.8 percent rise in broad money supply.
Looking ahead, analysts expect a rebound in private sector credit growth as banks step up lending activities following the expansion of their capital base and in anticipation of a mildly less restrictive monetary environment. Expectations are that the Central Bank will gradually and cautiously ease monetary policy, which could lower borrowing costs and support renewed credit growth to the real economy.
