…Urges Monetary, Fiscal Authorities On Remedial Measures
The Centre for the Promotion of Private Enterprise (CPPE), a leading organized private sector (OPS) advocacy group has expressed serious concern over lingering structural weaknesses in Nigeria’s credit system due to lending to low lending banks to productive sectors of the economy.
The advocacy group in a Policy Brief issued on Sunday, and signed by its Director/CEO, Dr. Muda Yusuf, noted that despite the success of the ongoing bank recapitalisation exercise, lending remained scarce in the productive sectors.
The Centre maintained the recapitalization of the banks and improved balance sheets of the lenders as reflected in their financial statements must now translate into improved funding for the real economy in view of its huge potential to boost the nation’s economy.
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While commending the Central Bank of Nigeria (CBN) on its recapitalisation programme, which it described as a significant milestone in the ongoing effort to strengthen the resilience, stability and capacity of the Nigerian banking system, the CPPE stressed that available data continued to show that financial intermediation in the real sector still remained weak.
Specifically, it noted that with private sector credit at just 17% of GDP in 2025, which was far below the Sub-Saharan Africa’s (SSA’s) average of 25% and the 34% benchmark for lower-middle-income countries, it had become imperative for the banks to prioritize credit to productive sectors, particularly manufacturing industry.
It clarified: “Credit with maturity of less than one year accounts for about 55% of total credit, while long-term credit (above three years) accounts for only about 25%.”
“This structure is not aligned with the financing needs of critical sectors such as manufacturing, agriculture, infrastructure and real estate”, the OPS advocacy group added.
According to the CPPE, as of last year, consumer credit accounts for only 7 percent of total lending, below the 15–25% regional range, with Small and medium enterprises (SMEs), receiving just 1% of total bank credit, compared to a regional average of 5%, despite contributing roughly 50% of the nation’s GDP and creating over 80% of employment.
Noting that approximately 55% of bank lending is short-term (less than one year), while long-term credit above three years accounts for only 25%, the OPS advocacy group disclosed that bank credit based on sectoral allocation favoured the Services sector (55% of total credit), with Manufacturing and Agriculture accounting for 14% and 5% respectively of the credit.
The Centre pointed out that this imbalance had been constraining financing for capital-intensive sectors, particularly manufacturing, agriculture, infrastructure, and real estate with the attendant negative implications for the government’s economic diversification and industrialisation agenda.
It identified crowding-out effect of high government borrowing, tight monetary policy environment and elevated interest rates, high risk perception and stringent collateral requirements for SMEs, and incentive structures that favour short-term, low-risk financial investments over real sector lending as among the factors constraining the effective transmission of financial sector strength to the real economy.
With recapitalisation largely achieved, the CPPE urged the CBN and the fiscal authorities to prioritize the reconnecting the banking system to the real economy as the next critical phase of reform drives.
It listed deliberate policy measures in this respect as increasing private sector credit as a percentage of GDP to at least 30% in the medium term, de-risking lending to SMEs through credit guarantees and improved credit infrastructure, strengthening of monetary policy transmission to ensure lower policy rates translate to real sector lending, incentivising long-term financing for productive sectors, promotion of a more balanced sectoral allocation of credit, expanding access to consumer credit to stimulate aggregate demand, and addressing the crowding-out effects of public sector borrowing
In the concluding part of its advocacy, the Centre canvassed: “The recapitalisation programme has successfully strengthened the resilience and stability of Nigeria’s banking system. The Central Bank of Nigeria deserves commendation for delivering a reform process that has been both effective and non-disruptive.
“However, the ultimate success of this reform will be determined not just by stronger balance sheets, but by the extent to which the banking system supports investment, enterprise, job creation and economic transformation.
“At this critical juncture, the priority must shift from capital adequacy to economic impact.
“Nigeria needs not just stronger banks, but banks that work for the economy”, the CPPE stressed.
