Nigeria’s Private Sector Credit Declines as Tight Monetary Policies Persist
Nigeria’s private sector credit witnessed a notable reduction of N1.07 trillion (1.41%) in January 2025, bringing the total credit to N74.88 trillion from N75.90 trillion recorded in November 2024. The Central Bank of Nigeria (CBN) has yet to release official data for December 2024, prompting estimates from Nairametrics Research, which suggests a decline of N536 billion on a month-on-month basis, placing December’s estimated credit at N75.42 trillion.
This contraction aligns with the CBN’s ongoing monetary tightening measures under Governor Yemi Cardoso, designed to curb inflation and ensure economic stability.
Fluctuating Trend in Private Sector Credit
According to the latest Money and Credit Statistics report by the CBN, private sector credit has exhibited fluctuations over time. Year-on-year, private sector credit dropped from N76.47 trillion in January 2024 to an estimated N75.42 trillion in December 2024, reflecting a N1.05 trillion (1.38%) decline.
Significantly, private sector credit had previously surged from N62.54 trillion in December 2023 to N76.48 trillion in January 2024, before the CBN initiated a hawkish monetary policy stance. This shift led to six consecutive hikes in the Monetary Policy Rate (MPR) beginning in February 2024.
Despite a relatively mild 0.71% month-on-month decline in January 2025 (based on estimates), the high cost of borrowing continues to affect businesses, reinforcing the impact of CBN’s stringent monetary policies.
Effects of Monetary Policy on Credit and Money Supply
The sustained decline in private sector borrowing highlights restrictive credit conditions influenced by elevated interest rates.
As previously reported by Nairametrics, the M3 money supply, incorporating net foreign assets (NFA) and net domestic assets (NDA), has seen significant expansion over the past year. By November 2024, M3 stood at N108.97 trillion, rising to N109.41 trillion in September 2024 and peaking in January 2025.
The CBN’s aggressive monetary policies, including six consecutive MPR increases in 2024, have contributed to moderating borrowing trends, with private sector credit fluctuating between N71 trillion and N76 trillion throughout the year.
Sectoral Distribution of Private Sector Credit
Data from the latest CBN Economic Report (November 2024) reveals that the manufacturing sector received the highest allocation of private sector credit, accounting for 14.1% of the total.
Other sectors with notable allocations include:
- General commerce: 13.4%
- Agriculture: 9.2%
- Finance and insurance: 7.3%
Manufacturing and commerce remain the leading drivers of credit demand, while the agricultural and financial sectors receive comparatively lower credit shares.
Nigeria’s GDP Growth vs. Private Sector Credit Expansion
Nigeria’s economy grew by 3.84% year-on-year in Q4 2024, surpassing the 3.46% growth rate recorded in the previous quarter and the same period in 2023. This momentum contributed to an annual GDP growth rate of 3.4% in 2024, up from 2.74% in 2023.
However, despite this economic growth, private sector credit as a percentage of GDP stood at 27.81% in 2024, down from 33.26% in 2023. This gap underscores the limited credit access available to Nigeria’s private sector, which is essential for sustained economic expansion.
In comparison, private sector credit as a share of GDP in Sub-Saharan Africa saw an 8.19% increase in 2023, reaching 27.73%. This growth signals the region’s ongoing efforts to enhance credit access and stimulate private sector development.
Conclusion
The decline in Nigeria’s private sector credit in January 2025 reflects the sustained impact of the CBN’s tight monetary policies. While these measures aim to stabilize inflation, they also pose challenges for businesses requiring credit for expansion. As economic growth continues, addressing credit accessibility issues will be crucial to fostering a more balanced financial environment.
Nairametrics Report on Private Sector Credit
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