Nigeria’s credit market is showing a widening divide between government borrowing and private-sector financing, with credit extended to the government surging 63% over the 12 months to September 2026, even as lending to businesses and other private borrowers declined during the month.
Data from the Central Bank of Nigeria (CBN) shows that net credit to the government rose by N15.24 trillion ($11.5 billion) over the year to reach N39.40 trillion ($29.6 billion) in September.
The increase accelerated sharply in September, when government credit climbed by N6.36 trillion ($4.8 billion), representing a 19.26% jump from August. The monthly increase reversed three consecutive months of declines, signalling a renewed expansion in government borrowing from the domestic financial system.
Private-sector credit, meanwhile, fell by N537.61 billion ($404 million), or 0.64%, to N83.93 trillion ($63.1 billion) in September. Despite the monthly contraction, private-sector credit remained 15.73% higher than a year earlier, suggesting that lending has continued to expand on an annual basis, although momentum weakened during the latest month.
Government borrowing drives domestic credit growth
The divergence comes as overall domestic credit continues to expand.
Net domestic credit increased by 4.96% in September to N123.34 trillion ($92.8 billion), taking annual growth to 27.56%.
Government borrowing accounted for approximately 57.2% of the annual increase in net domestic credit, while the private sector contributed the remaining 42.8%.
The figures highlight the growing importance of government financing in Nigeria’s domestic credit market. While public-sector borrowing can support government expenditure and economic activity, sustained demand for domestic funding can also complicate efforts to expand credit access for private businesses.
For companies, particularly small and medium-sized enterprises that depend on bank financing for working capital and expansion, the pace and cost of lending remain critical considerations.
However, the September figures alone do not establish that government borrowing directly displaced private-sector lending. The monthly decline could also reflect changes in loan repayments, credit demand and banks’ lending decisions.
Money supply expands as monetary policy remains tight
Nigeria’s broad money supply, measured by M3, rose by 5.40% in September to N146.60 trillion ($110.3 billion).
However, research by the Financial Markets Dealers Association indicated that the narrower M2 measure increased by just 1.38%. The difference was partly attributed to holdings of Central Bank of Nigeria bills outside the banking sector, which contributed to the stronger growth recorded under M3.
The distinction matters because different measures of money supply capture different components of liquidity in the financial system. Growth in M3 does not necessarily translate into an equivalent increase in funds readily available for bank lending to businesses.
The credit figures also come against a backdrop of tight monetary policy. On September 22, the CBN set its benchmark interest rate at 23%, maintaining a high policy-rate environment as the monetary authorities seek to manage inflation and broader economic pressures.
High interest rates increase borrowing costs for businesses and households, potentially limiting demand for new loans even as the financial system expands.
What the credit shift means for businesses and investors
Nigeria’s latest credit data presents a mixed picture for the economy.
On one hand, the expansion in domestic credit reflects increased financing activity and a growing stock of credit across the economy. On the other, the sharp rise in government borrowing and September’s decline in private-sector credit underscore the importance of monitoring how domestic financing is distributed.
For banks, the trend raises questions about the balance between lending to the government and financing private enterprises. Government securities and other public-sector exposures may offer banks alternative investment opportunities, while private-sector lending requires careful assessment of borrowers’ repayment capacity and credit risk.
For businesses, the combination of high interest rates and a monthly contraction in private credit could make financing decisions more difficult, particularly for firms with limited access to capital markets or alternative sources of funding.