Nigerian Banks Eye Fresh Lending Growth as Inflation, FX Pressures Ease
- The banking sector is showing early signs of recovery, with improving liquidity, rising foreign assets, and stronger external reserves
- Economists expect lending to rebound as inflation eases, interest rates decline, and banks complete recapitalisation
- Private sector credit is now forecast to grow by 10–15%, supported by reduced government borrowing and renewed bank lending
Legit.ng journalist Victor Enengedi has over a decade's experience covering energy, MSMEs, technology, banking and the economy.
Nigeria’s banking sector is entering 2026 with strong indications that the long credit slowdown is coming to an end. After almost two years of tight monetary policies, conditions are improving for banks to start lending more to businesses and households.
Figures from the Central Bank of Nigeria (CBN) showed that credit to the private sector rose slightly by 0.3% month-on-month to N74.6 trillion in November 2025. However, it was still 2% lower than the same period a year earlier, an unusual decline for Africa’s largest economy.
Source: UGC
This weakness was largely caused by the CBN’s efforts to control inflation and support the naira. Higher interest rates and tighter liquidity reduced banks’ ability to lend. While this slowed credit growth, it also strengthened banks and prepared them for a recovery phase.
Liquidity has gradually improved in the background. Money supply increased by 13% year-on-year to about N123 trillion in November 2025. Net foreign assets jumped by 115% to N37.4 trillion, supported by increased foreign portfolio investments and higher diaspora remittances.
External reserves also rose by $4.6 billion to $45.5 billion, helping to ease foreign-exchange shortages that previously limited lending.
Why lending is expected to rebound
Despite better liquidity, lending growth has remained weak so far. CBN data showed that by mid-2025, deposit money banks had extended only N58.2 trillion in credit, representing a modest 4% increase from the previous year. These banks still account for about 69% of total lending in the system.
The wide gap between this figure and total private sector credit highlights the growing role of development finance institutions, microfinance banks and non-interest lenders, which stepped in while commercial banks remained cautious.
According to The Sun, FBNQuest Merchant Bank believes a turning point will occur this year.
“Inflation is projected to soften as exchange-rate stability improves and food supply pressures ease, creating space for the CBN to dial back its restrictive stance. That shift will come just as banks are completing a sweeping recapitalisation drive, leaving them with thicker capital buffers and stronger incentives to put that capital to work."
With interest rates expected to decline, shareholders will likely push banks to use their expanded capital base to grow loan portfolios rather than hold idle funds.
Another supportive factor is reduced government borrowing. Credit to the public sector dropped by 33% year-on-year in 2025, easing the crowding-out effect that previously limited private sector access to funds, according to Punch.
As government demand for loans falls, banks are expected to focus more on businesses such as manufacturers, traders and agricultural firms.
Economists now project private sector credit growth of between 10% and 15%, reversing the contraction seen in 2025 and restoring deposit money banks as the main drivers of financial intermediation in the economy.
Source: UGC
CBN closes easy-money window
Meanwhile, Legit.ng earlier reported that the CBN ended its COVID-19 loan forbearance, pushing the industry’s non-performing loan ratio to about 7%, above the regulatory limit.
The rise in bad loans reflects delayed recognition of existing problems, especially in FX-sensitive sectors like power, manufacturing, aviation, and oil marketing.
While major banks remain stable, smaller and sector-exposed banks may face pressure as impairment charges rise alongside ongoing recapitalisation efforts.
Proofreading by James Ojo, copy editor at Legit.ng.
Source: Legit.ng
