Deposit Money Banks in Nigeria reduced their lending to oil and gas, information and communication technology, and six other critical sectors of the economy by N5.45 trillion, representing a 14.8 per cent year on year decline in 2025. This development highlights the consequences of the Central Bank of Nigeria withdrawing its regulatory forbearance alongside an ongoing clean up of bank loan portfolios. Regulatory forbearance, a policy allowing financial institutions to temporarily maintain operations and restructure bad loans below standard capital or asset quality requirements to prevent failures during crises, previously shielded these accounts. By the first quarter of 2025, seven major banks held $4.01 billion, which is over N6 trillion, tied up in these regulatory forbearance loans, marking high risk credit exposures and single obligor limit breaches. The withdrawal of this policy forced banks to remit these funds to the apex bank, diminishing their overall capacity to extend new credit lines.
Apart from oil and gas and the information and communication technology sectors, the credit reduction hit construction, education, manufacturing, real estate, and general services. Recent data from the Central Bank of Nigeria regarding the sectoral distribution of credit showed that total allocation to these eight sectors plunged to N31.31 trillion in 2025 from N36.77 trillion recorded in 2024. General services witnessed the sharpest percentage drop, collapsing by 25.02 per cent to N4.35 trillion from N5.80 trillion, which signifies a N1.45 trillion contraction. The manufacturing sector followed closely with a 22.52 per cent drop as its credit dropped to N6.61 trillion from N8.53 trillion, translating to a N1.92 trillion contraction. Real estate credit fell by 17.2 per cent to N792.71 billion from N957.38 billion, while credit to the oil and gas services segment dropped 12.35 per cent to N4.85 trillion from N5.53 trillion. Additionally, oil and gas industry credit fell 8.77 per cent to N10.59 trillion from N11.61 trillion.
Other sectors facing lower credit allocations included information and communication technology, where lending decreased by 7.51 per cent to N1.76 trillion from N1.90 trillion. The education sector experienced a 5.73 per cent drop to N84.13 billion from N89.25 billion, while the construction sector recorded a three per cent decline to N2.29 trillion from N2.36 trillion. Analyzing the situation, the Head of Equity Research at Quest Merchant Bank, Tunde Abioye, explained that the contraction stemmed primarily from the regulatory body ending forbearance on troubled allocations. He said: "The major reason for the decline in loans to certain sectors was the removal of regulatory forbearance on challenged loans by CBN. This lifting of forbearance resulted in sizable write-offs of loans by banks, which ultimately resulted in a contraction in banks’ and the industry’s loan book. The most affected sectors were the oil and gas and manufacturing sectors." Abioye added: "A likely implication is that banks will tighten their risk management frameworks and credit approval processes. There will be increased scrutiny of prospective loans."
Supporting this assessment, the Head of Financial Institutions Ratings at Agusto and Company, Ayokunle Olubunmi, noted that the termination of forbearance dictated the trend. He said: "The industry loan book was largely shaped by the write-offs associated with the forbearance termination. Similarly, improved liquidity in the foreign exchange market moderated the demand for trade loans, which formed a significant proportion of the loans to the manufacturing sector." Meanwhile, the Manufacturers Association of Nigeria stated that the massive drop in manufacturing credit indicates deeper structural struggles within the sector that go beyond the loan clean up exercises. The Director General of the association, Segun Ajayi Kadir, described the 22.5 per cent contraction in manufacturing credit as disturbing, warning that it severely threatens the industrialisation drive of the country.
The association pointed out that while Nigerian manufacturing credit fell by N1.92 trillion in 2025, nations like India and Vietnam intentionally widened bank lending to industry to boost production, thereby highlighting Nigeria's widening competitiveness gap. The group blamed this trend on exceptionally high lending rates, rigid banking conditions, an elevated cash reserve ratio, the suspension of direct development finance interventions by the central bank, and delays in launching the proposed N1 trillion Manufacturing Stabilisation Fund. Factory owners continue to face average prime lending rates near 27 per cent and maximum lending rates higher than 35 per cent, rendering long term industrial investments unviable. Furthermore, the association stated that banks increasingly prefer lower risk financial assets over productive sectors, which continues to choke off credit access.
The manufacturing body cautioned that dwindling credit could impair capacity utilisation, postpone technological updates, cause factory shutdowns, and trigger massive job cuts, while raising import reliance and worsening supply side inflation. It added that insufficient funding would disrupt the Nigeria Industrial Policy and hamper efforts to diversify the national economy away from crude oil. To remedy the problem, the group called on the federal government and the apex bank to lower interest rates, reduce the cash reserve ratio for financial houses lending to manufacturers, recapitalise the Bank of Industry, activate the N1 trillion Manufacturing Stabilisation Fund, and establish state backed credit guarantees to boost real sector loans.
Conversely, despite contractions in several fields, commercial banks boosted credit to agriculture, finance, and other segments by N11.42 trillion during the same timeframe. Agriculture credit expanded by 26.4 per cent year on year to N3.61 trillion from N2.85 trillion, while finance, insurance, and the capital market drew N9.24 trillion up from N7.75 trillion, indicating a 19.29 per cent rise. The most prominent growth occurred in the miscellaneous category, where credit jumped 722.19 per cent year on year to N9.11 trillion from N1.11 trillion, representing N8.01 trillion or roughly 70 per cent of the total extra credit granted to growing sectors. Government credit increased by 13.51 per cent to N3.27 trillion from N2.88 trillion, while power and energy industry credit rose 31.29 per cent to N1.49 trillion, and transportation and storage grew 18.12 per cent to N1.77 trillion.
Abioye tied the growth in finance and insurance lending to the current high interest rate environment. He said: "Credit expansion to finance and insurance can be linked to the elevated market rates due to the CBN’s tight monetary posture. Banks and other financial institutions, including pension funds and asset management companies, have benefited greatly from the level of interest rates. As such, credit allocation to the sector continues to grow. The sector is also one of the best-performing sectors of the economy, delivering double-digit GDP growth." Projecting into the future, Olubunmi expressed optimism that normal lending activities would recover. He said: "With the conclusion of the portfolio clean-up exercise and the recapitalisation of the banks, we anticipate a significant increase in exposure to the crucial sectors of the economy in 2026," Abioye also noted that banks will likely pivot their credit facilities toward sectors displaying stronger growth possibilities, such as telecommunications, information and communication technology, manufacturing, oil and gas, real estate, and construction.
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