Experts said these has led to slower economic recovery due to reduction in available credit, higher borrowing costs, and a significant drop in spending and investment.

They said businesses are struggling to operate, leading to job cuts and rising unemployment, while consumers face reduced purchasing power, noting that these have slowed economic activity.  

 According to them, while Ni­geria’s economy is experiencing positive growth, with forecasts for 2025/2026 at around 3.9% to 4.4% driven by services, it can still be described as experiencing slow activity from the perspective of the average citizen due to high inflation and the fact that growth isn’t reaching the majority of the population.

According to the apex bank’s latest Quarterly Statistical Bul­letin, total credit to the economy declined marginally by 0.2 percent quarter-on-quarter (q/q) to N59.1 trillion in the first quarter of 2025 — the first quarterly contraction in recent periods.

The data reflect the impact of the CBN’s sustained tightening policy, which has pushed interest rates to multi-year highs in a bid to tame inflation and stabilise the naira. As lending margins narrow and risk costs rise, banks have ad­opted a conservative approach, prioritising asset quality over aggressive loan growth.

“This pullback in credit growth is a natural response to tighter liquidity and higher yields on risk-free instruments,” said an investment banker in La­gos. “With the CBN mopping up liquidity through its open market operations and standing deposit facilities, banks are earning more from placing funds with the apex bank than from taking lending risks in a weak economy.”

Despite the overall contrac­tion, the oil and gas sector re­tained its position as the domi­nant recipient of bank credit. The sector accounted for 31.4 percent of total lending, equivalent to N18.6 trillion, representing an 8.2 percent q/q increase.

Analysts attribute this sus­tained growth to the energy sec­tor’s capital-intensive nature and the ongoing restructuring of leg­acy exposures as global oil prices remain relatively stable.

“The energy sector continues to attract financing because of its perceived strategic importance and relatively secured cash flows,” explained a Lagos-based credit analyst.

“Banks are also supporting downstream players and new en­trants in gas processing and distri­bution, which align with Nigeria’s energy transition goals.”

The finance and insurance sec­tor emerged as the second-largest recipient, absorbing 14.2 percent of total credit as disbursements grew 8 percent q/q. The expan­sion reflects banks’ growing appe­tite for non-real sector exposures — particularly investments in financial institutions and capital market-related instruments.

According to analysts, this trend underscores banks’ pref­erence for safer, short-term and higher-yielding assets, especially in an environment where loan de­faults in the real sector are rising.

“Banks are essentially reallo­cating risk. Lending to finance and insurance-related entities offers better returns without the complexities of managing man­ufacturing or trade-related credit risks,” said another analyst.

The manufacturing sector, tra­ditionally a key engine of credit growth, ranked third with a 13.1 percent share of total lending, but credit to the sector fell 9 per­cent q/q. The decline mirrors the tough operating environment confronting manufacturers — from foreign exchange volatility and high energy costs to weaker consumer demand.

Manufacturers, already bur­dened by imported inflation and high logistics costs, are struggling to meet repayment obligations, prompting banks to reassess ex­posures.

Many have shifted focus to­ward more resilient sub-sectors such as food processing and packaging, while cutting back on heavy industries and import-de­pendent segments.

“Manufacturing is no longer a haven for lenders,” a senior risk manager at a Tier-1 bank noted. “We are now more selective, pre­ferring clients with stable cash flows or export potential.”

The CBN Bulletin also showed sharp declines in credit to general services (-18%) and trade/general commerce (-18.8%). Analysts link the declines to weak working cap­ital demand, stricter lending stan­dards, and higher borrowing costs that have eroded the profitability of small and medium enterprises (SMEs).

These two sectors, which to­gether represent a significant portion of Nigeria’s employment base, are among the hardest hit by elevated interest rates. Many SMEs have resorted to alterna­tive financing — such as supplier credit or fintech lending platforms — though these often come with higher effective costs.

In his contribution, Stephen Iloba, an economist, said, “The commercial sector is feeling the pinch of liquidity constraints. Reduced inventory financing and slow consumer spending are weighing heavily on trade credit growth.”

In contrast, credit to the ag­riculture sector grew 11 percent q/q to N3.2 trillion, buoyed by targeted lending under gov­ernment-backed schemes and renewed interest in agro-process­ing ventures. However, the sector’s share of total credit remained low at 5.4 percent, despite contributing 26.2 percent to GDP in Q2 2025.

Analysts say the mismatch between agriculture’s economic importance and its access to for­mal financing reflects structural weaknesses — from inadequate collateral frameworks to weather and price risks that deter banks.

“Agriculture remains un­derbanked,” noted a develop­ment finance expert. “Without risk-sharing mechanisms and better insurance cover, banks will continue to allocate a dispro­portionately low share of credit to the sector.”

The report also showed that credit to the government in­creased 5.7 percent q/q to N3.1 trillion (a 5.2% share), highlight­ing the public sector’s sustained demand for short-term funding to plug fiscal gaps. Similarly, loans to the ICT sector grew 9 percent to N2.1 trillion, reflecting rising investments in digital infrastruc­ture, broadband expansion, and fintech growth.

“The ICT space remains a bright spot,” said a digital econo­my analyst. “Banks are financing data centre projects, network up­grades, and fintech innovations that support payment digitisation — all of which have long-term growth potential.”

Credit to the construction sec­tor was largely flat at N2.4 trillion (+0.1% q/q), consistent with the slow pace of capital projects and private real estate developments amid elevated material costs and subdued consumer demand. Meanwhile, the ‘Others’ catego­ry of loans fell 2.2 percent to N5.4 trillion, completing the picture of broad-based caution in lending activity.

Overall, the data affirm that Nigeria’s high-interest-rate envi­ronment and tight liquidity are constraining loan expansion. The CBN’s benchmark Monetary Policy Rate (MPR) — maintained at an elevated level through most of 2025 — has significantly raised borrowing costs, discouraging both banks and borrowers.

“The risk-adjusted return on government securities now rivals what banks can earn from loans,” said a treasury dealer at one of the top-five lenders.

“In this context, holding cash or investing in CBN instruments becomes more attractive than lending to riskier clients,” the dealer added.