Banks Flush with Capital, Economy Starved of Credit

Nigeria's banking sector has undergone a substantial recapitalization exercise, injecting approximately N4.65 trillion in fresh capital and bolstering industry balance sheets. However, this financial strengthening has not translated into increased lending to the private sector. The African Development Bank (AfDB) has voiced concerns, noting that credit to Nigeria's private sector constitutes a mere 9.4% of the Gross Domestic Product (GDP), placing the country among the weakest performers in Africa.

The AfDB's African Economic Outlook 2026 report describes Nigeria's financial system as underdeveloped and insufficient to support long-term economic transformation. Nigeria's private-sector credit-to-GDP ratio of 9.4% significantly lags behind other African nations like Kenya (31.6%), Egypt (28.3%), and Côte d'Ivoire (21.4%). Globally, it falls far short of emerging economies such as Vietnam (121.6%) and Malaysia (121.5%). The report highlights a broader trend in Africa, where financial institutions generally favor short-term, low-risk assets over long-term investments, resulting in a continental average domestic credit to the private sector of just 34.6% of GDP between 2020 and 2024.

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Nigeria’s financial system as shallow and insufficiently developed to support long-term economic transformation.

This limited access to finance poses a significant challenge for Nigeria's economy, constraining business growth, hindering industrial expansion, and reducing the capacity for job creation, particularly for small and medium-sized enterprises (SMEs). Experts attribute the persistent weakness in credit flow to several structural and policy issues. A primary factor is the increasing preference among banks for government securities, such as Treasury bills and federal government bonds. These instruments offer attractive returns with minimal risk, making them more appealing than lending to businesses operating in Nigeria's volatile economic environment.

Data from the Central Bank of Nigeria indicates that while private-sector credit stood at N75.62 trillion in February 2026, lending to the government surged to N35.77 trillion, marking a 24.2% year-on-year increase. Economists warn that this rising government borrowing is crowding out private investment. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), argues that banks naturally gravitate towards risk-free government instruments rather than engaging with businesses facing uncertain operating conditions. Additionally, high lending rates continue to discourage borrowing, despite some recent moderation in monetary tightening.

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banks naturally gravitate towards risk-free government instruments rather than businesses facing uncertain operating conditions.