Credit extended by the banking sector to the private sector declined by 1.3 percent month-on-month and 8.6 percent year-on-year in February 2025, following the Central Bank of Nigeria’s (CBN) continued monetary policy tightening aimed at curbing inflationary pressures.
According to data released by the CBN, credit to the private sector fell to N73.7 trillion in February 2025, compared to N74.91 trillion in January. On a year-on-year basis, the figure declined from N80.86 trillion recorded in February 2024.
The deceleration in private sector credit extension (PSCE) growth represents the second consecutive month of both monthly and annual declines in lending to the private sector. Analysts at FBNQuest explained that the reported data encompasses the entire banking system not just deposit money banks (DMBs) and also includes lending by the CBN, state-owned development institutions such as the Bank of Industry, as well as smaller lenders including microfinance and non-interest banks.
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The latest contraction in credit to the private sector largely reflects the CBN’s strategy of tightening liquidity within the banking system. This is a direct outcome of its prolonged hawkish monetary policy stance, aimed at addressing persistent inflationary pressures across the economy, a report by FBNQuest stated.
In contrast, the broad money supply aggregates monitored, namely M3 and M2 continued to record strong growth, increasing by 15 percent and 17 percent year-on-year respectively, to N110 trillion each.
However, the current pace of money supply growth has slowed when compared to the same period a year ago. At that time, M3 and M2 grew at approximately 79 percent and 78 percent year-on-year, respectively. The moderation in growth reflects the effectiveness of the CBN’s sustained policy interventions, as well as the impact of a stabilised exchange rate on foreign bank balances.
In addition, credit to the government rose by 8 percent month-on-month in February 2025, but experienced a 22 percent decline year-on-year, settling at N26.5 trillion.
Net foreign assets also recorded a significant year-on-year increase, reaching N32.3 trillion well above the N7.4 trillion recorded in the same period the previous year. This reflects the CBN’s ongoing efforts to boost foreign exchange inflows into the economy. However, on a month-on-month basis, net foreign assets declined by 9 percent, largely due to increased foreign capital outflows and the CBN’s active interventions in the FX market during the month.
Looking ahead, the analysts maintain a cautious outlook for credit growth in the short term, citing the high cost of credit and the continued tight liquidity environment as key constraints.
“Nonetheless, we expect a gradual easing of financial conditions over time, supported by the possibility of downward adjustments in the monetary policy rate, particularly if the recent trend of moderating inflation continues,” the analysts noted.
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In its economic report for the fourth quarter of 2024, the CBN highlighted that monetary aggregates showed broad money supply (M3) grew by 42.76 percent to N113.14 trillion, despite a decline in the money multiplier from 3.89 in September 2024 to 3.46. From the liability side, the increase in M3 was driven by notable growth in currency outside depository corporations (49.20 percent), transferable deposits (25.19 percent), and other deposits (53.13 percent). Among these, other deposits contributed the largest share 32.65 percentage points to the growth in M3, followed by transferable deposits with 8.49 percentage points, and currency outside depository corporations with 2.13 percentage points. However, securities other than shares, which declined sharply by 95.87 percent as of end-December 2024, slightly dampened the growth in broad money by 0.51 percentage points.
