Credit to Nigerian Economy Shrinks as Monetary Policy Shifts

Nigeria’s net domestic credit fell by 6.9 percent year-on-year to ₦109.4 trillion in January 2026. Data from the Central Bank of Nigeria (CBN) shows a marked contraction from the ₦117.5 trillion recorded in the same period last year. This decline in the total value of bank credit to both the public and private sectors reflects a strategic shift in monetary policy. Analysts suggest that as inflation begins a marginal descent, the central bank is adjusting the levers of liquidity to prevent overheating.

The private sector bore the brunt of this credit squeeze. Lending to businesses and individuals dropped to ₦75.2 trillion in January 2026, down from ₦77.4 trillion in January 2025. Conversely, bank credit to the government surged to ₦34.2 trillion from ₦25.03 trillion over the same period. This suggests that while the overall credit pie is shrinking, the state is consuming a larger slice. This “crowding out” effect leaves fewer resources for the entrepreneurs and firms expected to drive growth.

Quarterly trends throughout 2025 show a persistent downward trajectory in domestic credit. The figures fell by 4.4 percent in the first quarter, 2.8 percent in the second, and 1.1 percent in the third. A brief 2.6 percent uptick in the final quarter of 2025 proved to be a seasonal outlier rather than a reversal of the trend. The current January dip confirms that the era of easy money has largely ended as the central bank prioritises price stability over credit expansion.

Market observers remain divided on the implications of this contraction. Dr Muda Yusuf of the Centre for the Promotion of Private Enterprise welcomed recent cuts to the Monetary Policy Rate (MPR). He argues that a lower MPR, paired with reduced cash reserve requirements, will eventually expand the capacity of banks to lend. However, the current data suggests that this transition to “cheaper” credit has yet to reach the balance sheets of Nigerian businesses.

Lower interest rates are a “timely intervention,” but they are not a panacea. For credit to translate into actual economic output, the government must address the infrastructure deficits that drive up production costs. Without reliable power and transport, even low-interest loans cannot save a struggling factory. Fiscal authorities must now match the central bank’s monetary adjustments with structural reforms to ensure that credit flows into productive sectors rather than just financing government deficits.

The contraction in credit raises serious concerns about business survival in a high-cost environment. David Adonri of High Cap Securities warned that the squeeze hits at a time when consumer demand is already weak. Small and medium enterprises, which lack the cushions of larger conglomerates, are particularly vulnerable to this tightening. If the credit taps do not open soon, the marginal drop in inflation may come at the cost of a significant slowdown in industrial activity.