A report by the Alliance for Economic Research and Ethics (AERE), has bemoaned the country’s recent ₦14 trillion decline in private sector lending, adding that the situation should be treated as an economic emergency rather than a routine financial adjustment.
The report noted that the sharp decline in credit exposes deep structural weaknesses in the financial system, despite improvements in banking sector liquidity amid ongoing recapitalisation exercise and reforms by the Central Bank of Nigeria (CBN).
Titled, “The ₦14 Trillion Vanishing Act: When Nigeria’s Banks Have Money But Refuse to Lend It”, the document further pointed out that while broad money supply expanded to ₦124.99 trillion from ₦123.12 trillion between February and April 2026, private sector credit contracted significantly during the same period, resulting in a fall in net domestic credit to ₦120.18 trillion from ₦133.97 trillion.
AERE is a policy think tank chaired by Hon. Dele Oye, a former National President, Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA).
Oye is the immediate Past Chairman of the Organised Private Sector of Nigeria (OPSN) and Chairman of the Nigeria-Türkiye Business Council (NTBC).
However, the report stated that increased liquidity within the banking system had not translated into financing for businesses, manufacturers and entrepreneurs who drive economic growth, adding that “The ₦14 trillion credit contraction is not a statistical blip. It is a warning sirenm”
The report comes amid growing concerns over slowing business activity, weakening demand conditions and declining manufacturing output, despite efforts by the monetary authorities to stimulate economic growth through a more accommodative policy stance.
AERE maintained that the limited access to financing available to SMEs, which account for a substantial share of economic activity and employment – suggested a dysfunction within the country’s credit architecture.
According to the report, SME lending currently represents only one per cent of total bank credit, a figure it described as alarmingly low when compared to other developing economies.
It stressed, “The recapitalisation exercise, laudable as it was, with 32 banks meeting new minimum capital requirements, has produced banks with stronger balance sheets but no discernible increase in lending to those who need it most. The structural distortions are breathtaking.”
Essentially, the report highlighted what it described as a growing disconnect between banking sector performance and the realities facing businesses in the real economy.
It claimed that a large proportion of available credit continued to flow into short-term transactions and low-risk investments, while sectors such as manufacturing, agriculture and SMEs remain underfunded.
It stressed that more than half of total bank lending was concentrated in short-term facilities, leaving businesses that require patient capital unable to access financing with longer repayment periods.
The report further observed that manufacturing receives only a modest share of total bank credit, while agriculture accounts for an even smaller portion, despite repeated government commitments to diversify the economy away from oil dependence.
The report warned that the situation is currently contributing to a broader slowdown in economic activity.
It referenced the recent Purchasing Managers’ Index data which showed contraction in both industrial and services activities, declining new orders, falling employment levels and reduced inventory accumulation by firms.
According to the report, these indicators suggest that many businesses are scaling back operations due to weak demand and limited access to affordable credit.
It further linked the credit squeeze to rising government borrowing, arguing that commercial banks increasingly prefer investing in government securities rather than lending to private enterprises.
It noted that federal government borrowing through domestic debt instruments had continued to expand, creating strong incentives for banks to allocate funds to treasury bills and bonds that offer attractive returns with minimal risk.
The report maintained that the trend was crowding out productive investment and weakening the transmission of monetary policy.
AERE said recent reductions in the Monetary Policy Rate (MPR) had failed to lower lending costs for businesses because banks remained reluctant to expand private sector credit,adding that commercial lending rates remained elevated, making borrowing prohibitively expensive for many firms.
It warned that unless credit conditions improve, Nigeria risks undermining efforts to stimulate industrial production, create jobs and sustain economic growth.
The report among other things, called for a comprehensive restructuring of the country’s credit system, including stronger incentives for banks to lend to productive sectors, expansion of credit guarantee schemes, improved access to long-term financing and measures to reduce the crowding-out effect of government borrowing.
While emphasising that “Nigeria cannot borrow its way to prosperity, but it can certainly lend its way there,” the report
advocated targeted interventions aimed at supporting manufacturing, agriculture and SMEs, arguing that these sectors hold the greatest potential for job creation and economic expansion.
It stated that country’s future prosperity depended less on the volume of public borrowing and more on its ability to channel capital towards productive economic activity.
The report said while the CBN’s efforts to stabilise the exchange rate, strengthen reserves and recapitalise banks deserve recognition, those achievements would have limited impact if businesses remain starved of credit.
It warned that stronger banks alone would not guarantee economic growth unless financial institutions are encouraged to fulfil their traditional role of mobilising savings and extending credit to productive enterprises.
AERE maintained that restoring the flow of credit to manufacturers, farmers and entrepreneurs would be critical to unlocking investment, boosting productivity and creating sustainable jobs across the economy.
The report emphasised that the challenge confronting policymakers was no longer one of liquidity but of allocation, noting that unless urgent measures are taken to reconnect the banking system with the real economy, the country risks finding itself with well-capitalised banks operating alongside underfunded businesses and slowing economic activity — a contradiction that could undermine the country’s growth ambitions in the years ahead.
According to AERE,” In other words, the CBN can cut rates until it is blue in the face; if the banks do not feel like passing it on, they simply won’t. It is the monetary policy equivalent of shouting into a void and the void is making 35% interest.
“After 11 glorious months of disinflation, Nigeria’s headline inflation did what all good horror movie villains do: it came back…The economy is catching a cold, and the banks are handing out umbrellas in the desert. The inflation trajectory presents the CBN with an impossible trilemma.
“Cut rates further to stimulate credit, and risk reigniting inflation especially with election-related spending looming and the Middle East crisis showing no signs of resolution.
Hold rates steady, and watch the real economy wither.
Hike rates, and you might as well hand out pitchforks to the manufacturing sector.”
“SME lending in Nigeria accounts for just 1% of total bank credit…the sub-Saharan African average is around 5%.
In more advanced economies, it is multiples higher.
SMEs contribute approximately 50% of Nigeria’s GDP and employ over 80% of the workforce. Yet they face a financing gap estimated at ₦48 trillion a figure so large it could fund three federal budgets,” it added.
Quoting CBN data, the report said, “Total credit to the manufacturing sector declined sharply from ₦8.49 trillion in October 2024 to ₦6.79 trillion by October 2025 a year-on-year contraction of approximately 20.1%.
“Commercial lending rates surged to the 35–37% range, rendering debt servicing “increasingly unsustainable for manufacturing firms.”
“The sector’s contribution to GDP has remained modest and on a ‘gradual downward trend’, averaging 8–9% of national output.
“This is not because Nigerians do not consume manufactured goods they do, in vast quantities. It is because Nigerian manufacturers cannot compete with imports, cannot access affordable power, cannot move goods efficiently, and critically cannot access affordable credit.”
Among other recomendations, the report urged the CBN to move beyond moral suasion and impose binding sectoral lending requirements.
It said, “If banks can find ₦39.6 trillion to lend to the government, they can find ₦10 trillion for manufacturing and ₦5 trillion for SMEs.
“The CBN should require that a minimum of 30% of total bank credit be directed to the real economy (manufacturing, agriculture, and SMEs) within 24 months, with penalties for non-compliance including increased CRR requirements or restrictions on dividend payouts.
“The ₦48 trillion SME financing gap will not close through wishful thinking. The government, in partnership with the CBN and development finance institutions, must massively scale up credit guarantee schemes.”
Continuing, it said,” The hour calls for boldness, not caution
Nigeria stands at a crossroads. The CBN has stabilised the exchange rate, built external reserves, and recapitalised the banks.
“These are genuine achievements, and Governor Cardoso deserves credit for them. But monetary policy stability without credit growth is like a beautiful car with no engine.
It looks good in the driveway, but it will not take you anywhere. The ₦14 trillion credit contraction is not a statistical blip. It is a warning siren.”
James Emejo
