Banks’ credit to private sector declines for 2nd consecutive month in February 2025

• Banks’ credit to the private sector declined for the second consecutive month to N73.66 trillion in February 2025
• Credit to the government, however, increased to N26.49 trillion in February
• The late passage of the 2025 budget, the slow start to business activities in the year, and the high-interest rate environment are some of the factors that contributed to the decline in private sector credit

Banks’ credit to the private sector dropped by 1.67 per cent in February 2025, marking the second consecutive month of decline in the year.

Credit to the private sector refers to financial resources provided by financial institutions to businesses and individuals through loans, investments, and other forms of credit.

According to data from the Central Bank of Nigeria (CBN) available on its website, banks' credit to the private sector declined from N74.92 trillion in January to N73.66 trillion in February 2025.

The data also showed that private sector credit further declined from the N75.96 trillion recorded in November 2024, which was the last reported month of last year.

It also revealed that credit to the private sector had ranged between N71 trillion and N75 trillion since last year, with the highest being N80.86 trillion recorded in February 2024.

Credit to government increases to N26.49 trillion in February

The CBN data further showed that credit to the government rose to N26.49 trillion in February from N24.52 in January 2025.

Banks’ credit to the government was as high as N39.62 trillion in November 2024, indicating banks’ willingness to extend credit to the government.

Factors responsible for decline in credit to private sector

Some of the factors attributed to the consistent decline in credit to the private sector are the late passage of the 2025 budget by the Federal Government and the slow start to business activities in the year.

Despite this, the February Stanbic IBTC Bank Nigeria Purchasing Managers’ Index (PMI) said in February 2025, businesses recorded the most pronounced improvement in business conditions since January 2024 and that the month marked the third consecutive month of strengthening within the private sector.

The report stated that the headline PMI rose to 53.7 in February from 52.0 in January, signalling a solid monthly improvement in business conditions.

The PMI report said some of the key driver of the growth includes increased output, as February saw an increase in output, the fastest since January 2024, attributed to higher sales amid an improving demand environment.

High interest rate environment a challenge to real sector

Another reason for the decline in credit to the private sector is the high-interest-rate environment that characterised 2024.

While the rate increase encouraged lending by the banks, it was a burden to the real sector given the high cost of borrowing.

Recall that the Monetary Policy Committee (MPC) of the CBN voted to increase the Monetary Policy Rate (MPR) six consecutive times in 2024, making an 875-basis point increase in MPR from 18.75 per cent in January 2024 to 27.50 per cent in November 2024.

In its February 2025 meeting, the MPC decided to retain the MPR at 27.50 per cent following a deceleration in inflation figures.

The CBN consistently maintained that its tight monetary stance was to curb soaring inflation, which surged to 34.80 per cent in December 2024, surpassing a 28-year high.

However, following the rebasing of the Consumer Price Index (CPI) by the National Bureau of Statistics (NBS), the headline inflation for January 2025 dropped to 24.48 per cent.

The inflation rate further declined in February to 23.18 per cent, which prompted the hold decision of the MPC.

Banks, other financial institutions reported higher loan default rates in Q4 2024 – CBN

Meanwhile, TheRadar earlier reported that the Central Bank of Nigeria (CBN) said lenders, including commercial banks and other financial institutions, recorded higher default rates for secured, unsecured, and corporate loans in the fourth quarter (Q4) of last year 2024.

The CBN revealed this in its Q4 2024 Credit Conditions Survey Report published on its website.