Nigerian Banks' Private Sector Credit Shrinks 14% Amid Tight Monetary Policy

Nigerian banks have significantly reduced lending to the private sector, with credit shrinking by 14% year-to-date to N81.04 trillion as of May 2026. This marks a substantial drop from N93.74 trillion at the start of the year, according to Central Bank of Nigeria (CBN) data.

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We believe the re-enforcement of the CBN’s limit on Deposit Money Bank’s loans-to-deposits macro-prudential ratio will continue to drive the willingness of commercial banks to create risky assets over the short to medium term.

Analysts point to several factors contributing to this trend, including heightened credit risk concerns, economic uncertainty, and the allure of safer government securities. The CBN's ongoing tight monetary policy is also seen as a key driver, potentially making banks more cautious about extending loans.

Despite the contraction in private sector credit, lending to the government has seen a notable increase. Credit to the government rose by 6.6% to N40.38 trillion by May 2026, attributed by experts to excess liquidity within the banking system. Banks are reportedly favoring risk-free government instruments for investment.

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Excess liquidity contributed to growth in credit to the government, stressing that banks are always looking for risk free government instruments to invest.

Experts caution that the outlook for credit remains mixed. While banks have the capacity to lend more, concerns persist regarding the equitable distribution of credit across various business tiers. Small businesses, crucial for job creation, may not be benefiting sufficiently due to perceived credit risks. The CPPE's CEO, Dr. Muda Yusuf, stressed the need for more inclusive credit access to foster stable economic growth and employment.

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There are major concerns in terms of distribution of credits across sectors and companies with small businesses, which contribute more to job creation and economic inclusion, not likely to benefit much.