Despite a sharp increase in liquidity within the banking system, lenders in Nigeria appear to be scaling back funding to the private sector. Total credit to the private sector dropped by 14.8 percent, equivalent to N14 trillion, between February and April 2026. This decline may indicate a continued neglect of the critical sector in capital allocation or an aggressive liquidation of existing contracts. Either scenario could lead to reduced investment, undermining efforts to create jobs and accelerate economic growth.
Banking Sector Liquidity Surge
The banking sector raised N4.65 trillion through fresh capital over the past two years. Since much of these funds were sourced from the local market, the sector may have crowded out other critical sectors in its drive to meet new capital thresholds. The recapitalisation has significantly boosted system liquidity and theoretically increased lenders' capacity to fund the economy, especially the private sector. However, private sector funding is faltering just as the sector has ramped up recapitalisation.
Earlier reports indicated that the real sector, which offers substantial credit opportunities, would require significant de-risking—including policy realignment, fiscal incentives, infrastructure upgrades, and efficient power—to benefit from the apparent excess liquidity in the banking sector.
Impact of Political Risks
With general elections less than a year away, rising political risk has compounded the inefficiency crisis facing the private sector. This could significantly increase the risk premium for the real private sector. Not surprisingly, sector credit balances as of April dropped sharply to N80.59 trillion, almost 15 percent down from the all-time high of N94.61 trillion recorded at the end of February. The figures, contained in the money and credit statistics of the Central Bank of Nigeria, had shown consistent year-on-year growth up until February, when it rose by 24 percent (N18.34 trillion).
Government Credit Growth
In contrast, credit to the government maintained moderate but steady growth, reaching N39.6 trillion as of April. This narrowed the historical wide gap with total private sector credit. Government credit grew by 65.5 percent year-on-year as of April. Meanwhile, private sector credit regrettably regressed to 2.4 percent after the sharp drop in April.
Importance of Private Sector Credit
Private sector credit is crucial for job expansion and economic growth, as it facilitates the establishment of new plants, expansion, household consumption, and other critical investments that support economic activities. Poor funding continues to negatively impact the real sector of the economy.
Manufacturing Sector Performance
In the first quarter of 2026, the manufacturing sector's contribution to real output stood at 9.57 percent. This represents a slight decline from the 9.62 percent contribution recorded in the corresponding quarter of 2025, but a significant improvement over the 7.4 percent posted in the fourth quarter of 2025. The National Bureau of Statistics (NBS) reported that the real sector recorded stronger year-on-year and quarter-on-quarter growth during the first quarter of 2026.
Real GDP growth of the manufacturing sector stood at 3.29 percent year-on-year in Q1 2026, surpassing the corresponding quarter of 2025 and the preceding quarter by 1.6 percentage points and 2.17 percentage points, respectively. Quarter-on-quarter growth in the sector was estimated at 3.59 percent, indicating a gradual recovery in industrial activity. Nominal GDP growth of manufacturing stood at 10.22 percent year-on-year in Q1 2026, compared to 5.8 percent recorded in the preceding quarter. The report also showed that the sector contributed 10.08 percent to nominal GDP in Q1, compared to 10.78 percent in the corresponding quarter of 2025 and 8.34 percent in Q4 2025.
