In 2025, Nigerian deposit money banks significantly reduced their credit allocation to several major economic sectors, cutting lending by N5.45 trillion—a 14.8 percent year-on-year decrease. This contraction was primarily driven by the Central Bank of Nigeria’s (CBN) decision to terminate its regulatory forbearance policy, which had previously allowed banks to carry troubled loans on their books without meeting standard capital requirements. The withdrawal of this policy forced financial institutions to clean up their loan portfolios and settle outstanding obligations with the regulator, thereby shrinking their available capital for lending.
Key sectors hit by this downturn include manufacturing, oil and gas, construction, real estate, education, and information and communication technology. Manufacturing alone saw a credit reduction of N1.92 trillion, while general services experienced the largest percentage decline. Experts, including Tunde Abioye from Quest Merchant Bank, noted that this shift has forced banks to adopt more rigorous risk management and stricter credit approval processes.
The Manufacturers Association of Nigeria (MAN) expressed alarm over the situation, arguing that the decline threatens the nation’s industrial goals. Segun Ajayi-Kadir, Director-General of MAN, pointed to high interest rates, exceeding 35 percent in some cases, as a major barrier that makes long-term investment unfeasible. The association warned that a lack of adequate financing could lead to factory closures, job losses, and increased reliance on imports.
Conversely, some sectors managed to secure increased funding. Credit to the agricultural sector rose by 26.4 percent, while lending to finance, insurance, and the capital market grew by 19.29 percent. Analysts suggest this growth is tied to the current high-interest-rate environment, which favors financial institutions. Looking forward, industry observers remain optimistic that once bank recapitalization is complete and loan portfolios stabilize, credit flow to critical productive sectors will recover in 2026.
