Nigeria’s banking sector is showing clear signs of tightening credit conditions as loans by commercial and merchant banks fell to ₦52.656 trillion, the lowest level in 14 months, underscoring growing lender caution amid regulatory pressure and a challenging macroeconomic environment. The decline reflects a combination of high interest rates, rising risk aversion and banks’ efforts to shore up balance sheets ahead of stricter capital requirements, even as businesses continue to grapple with weak demand and rising operating costs.
Data from the Central Bank of Nigeria (CBN) indicate that banks are slowing credit expansion as they prioritise asset quality and capital preservation. With the withdrawal of regulatory forbearance and heightened scrutiny of non-performing loans, lenders are becoming more selective, favouring short-tenor, low-risk assets over long-term private sector exposure. Analysts say this shift has been reinforced by attractive yields on government securities, which provide safer returns without the credit risks associated with corporate and retail lending.
The pullback in lending is particularly significant for the real sector, where access to bank credit remains a critical driver of growth. Small and medium-sized enterprises, already under pressure from inflation, currency volatility and rising energy costs, are finding it increasingly difficult to secure affordable financing. Many operators report tighter lending conditions, higher collateral requirements and interest rates that make borrowing uneconomical, forcing some businesses to scale back operations or defer expansion plans.
Merchant banks, traditionally active in corporate and project finance, have also reduced exposure as long-term projects become harder to structure in an environment of volatile costs and uncertain cash flows. Commercial banks, meanwhile, are tightening lending to households and smaller businesses, citing weaker consumer purchasing power and higher default risks. The result is a broad-based slowdown in credit growth that could weigh on investment, output and job creation if sustained.
By Olakanmi Bankole,Abuja
Economists warn that while the cautious stance may strengthen financial stability in the short term, prolonged credit contraction poses risks to economic recovery. With bank lending accounting for a significant share of private sector financing, reduced credit flow could deepen liquidity constraints across key sectors, including manufacturing, trade and services. They argue that easing inflationary pressures and lowering borrowing costs would be critical to restoring confidence and reviving credit demand.
As banks navigate recapitalisation requirements and macroeconomic headwinds, the challenge for policymakers will be to strike a balance between safeguarding the financial system and ensuring that credit continues to flow to productive sectors of the economy. Without such balance, analysts caution, the credit slowdown could become a drag on growth at a time when the economy needs investment and employment generation the most.
