Nigerian commercial banks cut lending to eight major sectors of the economy by N5.45 trillion in 2025, with total sectoral credit falling 14.8 per cent from N36.77 trillion to N31.31 trillion, as the Central Bank of Nigeria’s withdrawal of regulatory forbearance forced banks to clean up their loan books and reduce high-risk exposures accumulated over several years.
The figures, drawn from CBN sectoral credit data, reveal a banking sector in the middle of a significant transition — one that tightened credit conditions across some of Nigeria’s most economically important industries even as the recapitalisation programme raised fresh capital and set the stage for a potential credit rebound in 2026.
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Which sectors were hit hardest
Manufacturing recorded the steepest absolute decline in bank lending, with credit to the sector falling by N1.92 trillion or 22.5 per cent to N6.61 trillion. The Manufacturers Association of Nigeria (MAN) attributed the contraction to prohibitively high lending rates, with average prime lending rates at approximately 27 per cent and maximum lending rates exceeding 35 per cent, making long-term investment in factories commercially unviable for most producers.
MAN also cited the CBN’s suspension of direct development finance interventions and the delayed implementation of the proposed N1 trillion Manufacturing Stabilisation Fund as contributing factors. Oil and gas lending also declined sharply, with credit to the oil services segment falling 12.35 per cent to N4.85 trillion and oil industry credit dropping 8.77 per cent to N10.59 trillion. Information and communication technology lending fell 7.51 per cent to N1.76 trillion, education credit contracted 5.73 per cent to N84.13 billion, and construction lending fell three per cent to N2.29 trillion. General services credit recorded a steep 25 per cent decline.
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Why the cuts happened
Head of Equity Research at Quest Merchant Bank, Tunde Abioye, explained that the primary driver was the CBN’s decision to end regulatory forbearance on troubled loans. This policy had previously permitted banks to restructure non-performing credit and temporarily breach prudential limits without incurring regulatory penalties. When forbearance was withdrawn, banks were required to recognise impaired assets at their true value and write off loans that no longer met prudential standards.
The resulting write-offs reduced loan books across the industry, with oil and gas and manufacturing bearing the heaviest impact. Regulatory forbearance loans across seven major banks had reached $4.01 billion as of the first quarter of 2025, and the clean-up of that exposure drove much of the contraction in sectoral credit recorded over the year. Against the broader global context, MAN noted that Nigeria’s approach was starkly different from countries such as India and Vietnam, which deliberately expanded bank lending to industry during the same period to stimulate production and widen their competitiveness advantage.
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Where credit grew and what comes next
Not all sectors contracted. Agricultural lending rose 26.4 per cent to N3.61 trillion, supported by increased attention to food security and the continued expansion of agribusiness. Credit to the finance, insurance, and capital market sector grew 19.3 per cent to N9.24 trillion, driven by elevated market rates and strong returns in financial assets. Transportation and storage lending also rose 18.12 per cent to N1.77 trillion.
Analysts are cautiously optimistic that the credit contraction of 2025 will give way to an expansion phase in 2026. Director and head of research at Afrinvest, Ayodeji Ebo, said the conclusion of the loan portfolio clean-up exercise and the raising of N4.65 trillion in new capital under the recapitalisation programme should position banks to increase exposure to productive sectors. Abioye identified telecommunications, manufacturing, oil and gas, real estate, and construction as the sectors most likely to attract renewed lending as banks rebuild their books on a cleaner foundation.
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What it means for Nigerian SMEs
The N5.45 trillion contraction in sectoral lending captures a broader dynamic that small businesses feel most acutely. When banks reduce credit to manufacturing, construction, and ICT simultaneously, the impact cascades through supply chains, squeezing the smaller enterprises that supply inputs, provide services, or distribute outputs for those sectors.
SMEs lack the access to bond markets, commercial paper programmes, or development finance windows that larger corporates can use to bridge credit gaps, making them disproportionately exposed when bank lending tightens. If analysts are correct that 2026 marks a turning point, the question for Nigeria’s SME community is whether the credit rebound will reach them in time and at rates that make borrowing commercially viable.
