Credit to private sector declines amidst tight monetary policies

Agency Report

Nigeria’s private sector credit recorded a measured decline of N1.07 trillion (1.41 per cent) in January 2025, reducing total credit to N74.88 trillion from N75.90 trillion in November 2024.

This decline aligns with the Central Bank of Nigeria’s (CBN) continued monetary tightening under Governor Yemi Cardoso, aimed at curbing inflation and stabilizing the economy.

According to the latest Money and Credit Statistics report by the CBN, credit to the private sector has exhibited fluctuations, reflecting both increases and declines over time.

In a year-on-year comparison, private sector credit stood at N76.47 trillion in January 2024 but fell to N75.42 trillion in December 2024, marking a N1.05 trillion (1.38 per cent) decrease.

The decline in private sector credit comes amid the CBN’s hawkish monetary stance, with six consecutive hikes in the Monetary Policy Rate (MPR) in 2024.

Despite a relatively modest 0.71 per cent month-on-month drop in January 2025, analysts say the prolonged period of high borrowing costs is impacting businesses significantly.

Financial expert and Chief Economist at FirstView Advisory, Dr. Ifeanyi Adetola, attributed the decline to the central bank’s tight monetary stance.

“The high interest rate regime, though necessary for inflation control, is inadvertently stifling private sector growth. Many businesses, especially SMEs, are struggling to access affordable credit,” Adetola said.

Similarly, investment analyst and CEO of Frontier Capital, Ms. Kemi Olayemi, highlighted the ripple effects of stringent monetary policies.

“While the CBN’s strategy has helped slow inflation, it has also constrained access to funding for businesses. The decline in private sector credit, if prolonged, could hamper Nigeria’s economic expansion,” she noted.

Economic analyst, Dr. Segun Okonkwo, emphasized the importance of ensuring balanced credit distribution across sectors.

“The manufacturing and commerce sectors are the main drivers of credit demand, but agriculture and finance remain underserved. To achieve sustainable economic growth, policies should encourage equitable credit distribution,” he advised.

Despite the credit decline, Nigeria’s economy recorded a 3.84 per cent year-on-year growth in real terms in the fourth quarter of 2024, surpassing the 3.46 per cent growth rate of the previous quarter.

Annual real GDP growth for 2024 stood at 3.4 per cent, up from 2.74 per cent in 2023.

However, credit to the private sector as a percentage of GDP stood at 27.81 per cent in 2024, down from 33.26 per cent in 2023.

This gap underscores a critical issue—insufficient access to credit, which is essential for sustaining long-term economic development.

“This trend highlights the need for Nigeria to expand credit access, particularly for SMEs that serve as the backbone of the economy,” said Prof. Ahmed Bala, an economist at the University of Lagos.

Experts suggest that the Nigerian government and CBN must adopt a more balanced approach in their monetary policies to prevent excessive credit contraction.

Financial analyst and former banker, Mr. Tunde Fashola, suggested that targeted interventions could help mitigate the impact of high interest rates.