…As banks’ risk appetite wanes
Credit to Nigeria’s private sector fell to an 18-month low in September 2025 as a deepening liquidity squeeze and banks’ waning appetite curbed lending, according to new central bank data.
The slowdown highlights how tighter funding conditions and increased cash reserve requirements are limiting credit flows to businesses already struggling with rising costs and weakening demand.
Data sourced from the Central Bank of Nigeria (CBN) showed that Private Sector Credit Extension (PSCE) dropped by a modest 4.35 percent to N72.5 trillion in the period under review, compared to N75.9 trillion in August and N75.8 trillion in September of 2024.
The figures capture lending by the entire banking system, not only deposit money banks, which account for the bulk of the total. They also reflect credit extended by the CBN, state-owned development lenders such as the Bank of Industry, and smaller facilities provided by non-deposit money bank (DMB) financial institutions.
The September private sector credit extension puts Nigeria’s credit-to-GDP ratio at 19.9 percent, far below sub-Saharan Africa’s 2023 average of 40.6 percent. The gap is even more pronounced against the 2024 global average of 146.2 percent, according to the World Bank data.
Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise (CPPE), attributed the drop to the high ‘cost of credit,’ stressing that credit conditions in the country are very ‘tight,’ a condition he described as slowing down growth momentum in Africa’s most populous nation.
“Even with the rate cut, the interest rate is still very high. The tenor of funds available is also short-term. That’s why corporates are now going for commercial papers,” Yusuf said, noting that the Nigerian banking system is not ‘doing enough’ in its financial intermediation role.
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As inflation continues to soften after prices climbed to an over 28-year high last year, the monetary authorities slashed the benchmark interest rate by 50 basis points to 27 percent in September, marking the first rate cut in five years. With prices now at their lowest in about three years, analysts see more rate cuts on the cards, a move that could allow more credit extension and power growth.
Cash Reserve Ratio (CRR) was also reduced to 45 percent from 50 percent to allow credit flow into sectors that would engender economic growth.
However, Olusegun Sonowo, a senior banking executive, still described the credit environment as the most restrictive in recent memory, warning that liquidity sterilisation and currency swings are reshaping how banks lend and price risk, as well as manage capital.
He explained that the CRR structure forces banks to lock up cash that would ordinarily support working-capital financing, trade credit, and long-term capital expenditure. “If a bank has N1 billion and 45 percent is sterilised by the CBN, only N550 million is left to lend. Naturally, banks will become more selective,” he said.
He noted that the CRR regime has effectively removed a significant portion of loanable funds from the system, squeezing banks’ liquidity positions at a time when businesses most need credit.
Sonowo emphasised that the impact of the CRR is not only financial but also behavioural in how banks approach asset-liability management. He said the drag on liquidity compels bankers to be more selective in portfolio decisions and more conservative in extending facilities to sectors sensitive to shocks. In his assessment, the cumulative effect is a system that is not only cautious but, in many cases, constrained.
“When liquidity is sterilised at this scale, it affects the capacity of banks to support economic growth,” he said.
Meanwhile, other monetary aggregates, both broad money supply (M3) and M2 money supply, increased by eight percent year-on-year to N117.8 trillion each. This represents a moderation from the 10 percent year-on-year growth recorded in the previous month.
Credit extension to the government declined by 39 percent year-on-year to nearly N24.2 trillion. However, on a month-on-month basis, it was up 5 percent.