Nigeria’s private-sector credit increased by N3.96 trillion between April and August 2026, as stronger liquidity following the banking sector recapitalisation encouraged lenders to extend more loans. However, experts say elevated interest rates are still discouraging many businesses, particularly smaller companies, from taking on new debt.
Data from the Central Bank of Nigeria (CBN) showed that credit to the private sector grew by 4.91 percent over the four-month period, reaching N84.55 trillion in August from N80.59 trillion in April.
The growth represents a sharp improvement compared with the same period in 2025, when private-sector credit fell from N78.07 trillion in April to N75.88 trillion in August, representing a 2.81 percent decline.
On a year-on-year basis, credit growth also accelerated from 3.23 percent in April 2026 to 11.43 percent in August, highlighting stronger lending activity compared with the previous year.
Ayodeji Ebo, chief executive officer of MDU Capital, attributed the increase partly to improving business confidence, greater exchange-rate stability and continued economic growth despite persistent inflation.
He said increased liquidity within the banking system had also encouraged lenders to expand their loan books, although banks remained cautious and continued to prioritise borrowers considered creditworthy.
“Inflation is another factor: businesses now require more money to finance inventories and day-to-day operations. Therefore, part of the increase reflects higher funding needs rather than expansion in production,” Ebo said.
He added that the rise in credit was positive for the economy because loans directed towards productive activities could support investment, output and job creation.
However, Ebo noted that the broader economic benefits would depend on how the funds were used and whether businesses could borrow at rates that still allowed them to operate profitably.
Ayodele Akinwunmi, chief economist at United Capital Plc, said the recapitalisation of banks, alongside improvements in the business environment, had contributed to increased lending activity.
According to him, the number of bankable projects available for financing has also increased, creating more opportunities for lenders to provide credit to businesses.
However, Ayokunle Olubunmi, head of Financial Institutions Ratings at Agusto & Co., said strong foreign exchange liquidity, increased activity in the debt capital market, high funding costs and better working-capital management had reduced credit demand among many large corporations.
This means stronger bank balance sheets and greater lending capacity may not necessarily result in a similar increase in borrowing, particularly among large companies that can access alternative sources of finance or have improved their cash-flow positions.
The development follows the conclusion of Nigeria’s banking recapitalisation exercise, which required banks to increase their minimum capital bases. The exercise was designed to strengthen lenders’ ability to absorb losses, handle larger transactions and provide more financing to the economy.
Financial-sector experts, however, have stressed that the success of the exercise should not be judged only by higher bank capital or loan volumes. They said the more important measure is whether additional credit reaches viable businesses, increases production and creates jobs while banks maintain healthy asset quality.
Olutoye Ambekemo, chief risk officer at Sterling Bank, said recapitalisation had improved banks’ ability to absorb unexpected losses but had also increased pressure on lenders to deploy their additional capital effectively.
“Larger capital means larger advantage, but it also means there is pressure to deploy capital,” he said.
According to Ambekemo, investors who contributed fresh capital would expect returns, placing greater responsibility on banks to lend to viable businesses while maintaining proper risk-management standards.
He said lenders must identify creditworthy customers, make responsible lending decisions and ensure that funds are deployed within their established risk appetite.
Ambekemo also stressed that recapitalisation alone would not eliminate the structural difficulties affecting the banking industry or automatically transform the operating environment.
Ken Ife, lead consultant for Private Sector Development at the ECOWAS Commission and a professor, said Nigerian banks need to move beyond traditional lending models and provide more financing to businesses capable of increasing local production, creating employment and generating export revenue.
He questioned whether the additional capital raised by banks would reach productive sectors, noting that Nigeria’s large population of micro, small and medium-sized enterprises remains underserved by conventional bank financing.
Ife said the banking sector must address the financing gap affecting small businesses, particularly those operating outside the formal commercial lending system.
He also called on the CBN to reconsider its 45 percent Cash Reserve Ratio requirement and consider releasing some of the funds sterilised under the policy for targeted lending.
Under his proposal, banks that provide single-digit interest loans to selected productive sectors could receive incentives through a differentiated cash reserve arrangement.
He suggested that qualifying banks could earn returns on funds that would otherwise remain sterilised, provided the money is directed towards approved sectors.
Such a system, he argued, could lower borrowing costs for businesses while encouraging banks to finance productive economic activities.
Meanwhile, Taiwo Ajilore, deputy director representing the director of monetary policy at the CBN, said recapitalised banks would be assessed based on their ability to transmit monetary policy decisions, maintain asset quality and support productive sectors.
“For us in monetary policy, the number one metric for measuring their success is how well they transmit monetary policy signals in an accurate manner,” he said.
Ajilore explained that when the CBN lowers interest rates, banks should reflect the reduction in their lending rates, while increases in the policy rate should also be appropriately transmitted to borrowers.
He warned that monetary policy would have limited effectiveness if banks failed to pass policy signals through to customers.
The CBN official said banks with stronger capital positions were expected to increase financing for productive areas, particularly sectors capable of creating jobs and supporting economic growth.
“We are expecting those banks now to go to the economy and identify the productive sectors,” he said.
Ajilore specifically identified manufacturing, agriculture and infrastructure as sectors requiring greater financing. He noted that manufacturers require substantial funding, while agriculture needs financing to address production challenges and improve food supply.
He also encouraged banks to develop financing structures for infrastructure projects, including projects supporting schools and other essential services.
However, Ajilore warned that stronger capital bases and shareholder expectations could push banks towards riskier lending as they seek higher returns.
He said lenders must maintain a balance between profitability and asset quality, especially following the deterioration in asset quality associated with the end of regulatory forbearance.
Regarding the transmission of the September monetary policy rate cut from 26.5 percent to 23 percent, Ajilore said the speed at which borrowers benefit would largely depend on whether banks pass the lower policy rate on to their customers.
He said the CBN would monitor whether the benefits of the rate cut reach ordinary borrowers and businesses rather than being concentrated among major corporate customers.
The CBN’s September decision to reduce the Monetary Policy Rate by 350 basis points marked a significant easing of monetary conditions and raised expectations that lower funding costs could encourage more private-sector borrowing.
However, the extent to which the reduction results in cheaper credit will depend on banks’ lending decisions, risk assessments and their own cost of funds.
The latest credit figures show that bank lending has grown considerably faster in 2026 than during the corresponding period of 2025. The key challenge now is ensuring that the increased flow of credit translates into productive investment, stronger businesses and sustainable economic growth.
