Nigeria’s credit boom signals structural shift in lending

Nigeria’s sharp expansion in private-sector credit over the past two years signals an inflection point in the country’s reform cycle and reveals how policy, liquidity conditions, and risk pricing are being recalibrated in Africa’s largest economy. Private-sector lending rose from ₦66.9 trillion in September 2023 to ₦117.8 trillion in September 2025, a cumulative increase of 75.9 percent. The surge followed monetary, regulatory, and balance-sheet changes that pushed Nigerian banks to expand asset books aggressively after years of credit stagnation. The credit cycle is unfolding in an economy that recently exited a multi-year period of foreign-exchange rationing and subsidy distortions.

Nigeria’s gross domestic product of roughly $482 billion in 2025 is expanding at an estimated 3.4 percent, still below the 4.5–5.0 percent required to absorb labor-force growth, yet significantly stronger than the 2020–2021 pandemic lows. Credit deepening therefore carries structural relevance: every percentage-point increase in private-sector credit-to-GDP has historically translated into 0.2–0.3 percentage points of medium-term GDP acceleration in comparable emerging markets.

The mechanics behind this credit expansion are rooted in the Central Bank of Nigeria’s shift away from financial repression. Lower reserve requirements, adjustments to the loan-to-deposit ratio, and normalization of the policy rate enabled banks to rebuild risk appetite. Large lenders such as Zenith Bank (NGSE:ZENITHBANK) and GTCO (NGSE:GTCO) responded by rebalancing portfolios from government securities into risk assets, especially short-tenor corporate loans and trade finance.

At the same time, a moderately more predictable foreign-exchange framework reduced uncertainty in working-capital planning for corporates. For the banking system, expanding the share of interest-earning assets in private credit supports net interest margins, particularly when treasury yields stabilize. Margins had previously compressed as banks over-allocated to government paper that offered limited real returns under high domestic inflation.

Nigeria’s private-sector credit-to-GDP ratio remains low by emerging-market standards, improving from roughly 14 percent in 2023 to just above 20 percent in 2025. The comparable ratio is 28 percent in Kenya, 35 percent in Egypt, and over 45 percent in South Africa. This gap illustrates that Nigeria is not overheating; it is catching up from a suppressed baseline. The shift also reveals the return of risk intermediation. For a decade, banks operated in a quasi-fiscal environment, financing government deficits rather than productive enterprise. Moving ₦50 trillion of incremental credit toward firms is an implicit repricing of national economic priorities. Early distribution patterns indicate that credit growth is strongest in manufacturing, wholesale trade, food processing, and logistics—sectors with high employment elasticity. Assuming a credit multiplier of 1.3 to 1.6 times, the ₦117.8 trillion credit stock could support ₦150–₦185 trillion in incremental private-sector output.

Markets have responded unevenly. Nigerian eurobond spreads narrowed by roughly 80 basis points year-to-date, while the domestic yield curve steepened as investors began to price higher private borrowing and a more open capital account. In equities, bank stocks outperformed the broader market by double digits during the credit-expansion period, driven by expectations of loan book growth and improving risk-adjusted returns. Yet valuation dispersion remains wide: investors continue to discount credit quality, currency risk, and the ability of firms to pass on higher financing costs in a high-inflation environment.

Forward risks are non-trivial. Inflation remains elevated above 20 percent, real rates remain negative, and credit concentration skews toward large corporates, leaving small and medium-sized enterprises under-served. If banks fail to broaden credit access beyond a narrow tier of firms, the macro multiplier will weaken and credit quality will deteriorate in a downturn.

The durability of the credit cycle therefore depends on three measurable variables over the next 12–18 months: private-sector credit-to-GDP rising sustainably above 25 percent, non-performing loans holding below 6 percent, and stable foreign-exchange liquidity that reduces hedging costs for import-dependent sectors.

If these thresholds are met, Nigeria could shift from episodic credit spikes to a structurally deeper financial system, enabling banks to become true engines of investment rather than repositories of idle liquidity.