Yemisi Izuora
Broader access to bank credit remains constrained in Nigeria, while the Central Bank’s September 22 rate cut mainly brought its policy rate closer to market rates that had already declined.
Overnight rates were trading around 22% before the meeting, while the 364-day Treasury-bill stop rate had fallen from 17.59% in August to 16.62% by September 9. At the first Treasury auction after the decision, the 91-day bill cleared at 15.50%, equivalent to a 16.14% yield. Headline inflation stood at 15.39% in August. The gap between the new policy rate and short-term government yields is consistent with Governor Olayemi Cardoso’s description of the decision as an operational reset rather than a change in the central bank’s policy stance.
The reset also leaves one of the main constraints on bank lending unchanged.
The Central Bank of Nigeria kept the cash reserve requirement at 45% for commercial banks, 16% for merchant banks and 75% for public-sector deposits held outside the Treasury Single Account. Commercial banks therefore continue to place a large proportion of eligible deposits with the central bank rather than make those funds available for lending or other uses.
Under the revised operating framework, banks can borrow from the central bank at 23.5%, while eligible deposits placed with it earn 20%. Lower market rates can reduce funding and lending costs over time, but the September decision did not release a new pool of liquidity for banks to lend.
The structure of bank balance sheets adds another constraint,according to EcofinAgency.
The International Monetary Fund estimated in its 2026 review that government securities represented about 22% of Nigerian banking-system assets. Guaranty Trust Holding Company, whose main banking subsidiary is Guaranty Trust Bank, illustrates the role such securities can play in bank earnings. Investment securities generated about N187 billion in interest income during the first quarter, close to 40% of total interest income. Its net customer loan book increased only 1.3% during the quarter to N3.17 trillion, while customer deposits rose 6.3% to N13.69 trillion. Falling sovereign yields could gradually make private lending relatively more attractive, but banks must still weigh those additional returns against higher credit risk and the capital required to support loans.
Private-sector credit increased for a third consecutive month to N84.55 trillion in August, from N83.43 trillion in July and N83.26 trillion in June. The stock was 11.4% higher than the N75.88 trillion recorded in August 2025, but remained N10.06 trillion below the N94.61 trillion reached in February. The International Monetary Fund expects private-sector credit to grow 14% in 2026 after contracting 1.2% in 2025. With annual inflation still at 15.39% in August, nominal credit growth of around 11% remained below the pace of consumer-price increases.
The aggregate figures also conceal large differences between borrowers. Central bank data for the first quarter showed credit to manufacturing declining from N6.57 trillion in January to N5.77 trillion in March, while lending to oil and gas also fell. Credit to power and energy increased from N1.30 trillion to N1.61 trillion over the same period, while real-estate lending rose from N4.67 trillion to N6.29 trillion. The Manufacturers Association of Nigeria separately reported that bank credit to manufacturers had fallen from N8.53 trillion at the end of 2024 to N6.61 trillion at the end of 2025, based on its own sector data. The figures are not directly comparable with the central bank’s quarterly series, but both point to weaker lending to manufacturers. A recovery in the aggregate stock of private credit therefore does not yet indicate a broad-based expansion in financing across productive sectors.
Credit to government has meanwhile declined sharply. It fell from N40.03 trillion in June to N33.92 trillion in July and N32.70 trillion in August, a reduction of N7.33 trillion in two months. That fall coincided with three consecutive monthly increases in private-sector credit, although the monetary data do not establish that funds withdrawn from government financing were directly transferred to private borrowers. The combination nevertheless matters for banks: declining government borrowing and lower Treasury yields reduce the returns available from sovereign assets, potentially increasing the relative attraction of private lending.
Whether that shift occurs will depend on more than interest rates. Nigerian banks must still weigh corporate default risk, currency exposure and the cost of capital against the return available from government securities. The 45% reserve requirement further limits the resources available for lending. For companies, the relevant monetary-policy transmission will therefore come through actual bank lending rates, credit approvals and loan volumes rather than the 350-basis-point change in the central bank’s headline rate.
Nigeria enters this adjustment with a much larger foreign-exchange buffer. Gross reserves reached $55.25 billion on September 18, their highest level in 18 years, compared with $51.39 billion at the end of June and $48.35 billion at the end of March. The increase gives the central bank more capacity to manage foreign-exchange liquidity and, if it contributes to greater currency stability and foreign-exchange availability, could reduce some of the risks banks consider when lending to companies dependent on imported machinery, raw materials and intermediate goods. The naira traded around N1,328 to the dollar around the September policy decision.
Nigeria’s external accounts have supported the increase in reserves. The country recorded a $7.54 billion current-account surplus in the second quarter, backed by a $10.12 billion goods surplus, while refined petroleum exports increased 66.24% to $3.94 billion. Portfolio investment inflows also rose to $7.09 billion from $6.03 billion in the first quarter. At the same time, the primary-income deficit widened to $4.20 billion as dividend and interest payments to non-resident investors increased. The composition matters because part of the foreign currency entering Nigeria is linked to financial returns rather than exports or long-term investment.
The International Monetary Fund had already identified that relationship in its review of the 2025 reserve build-up. Alongside the current-account surplus, it cited about $6 billion of net purchases of central-bank open-market instruments by non-residents and a $2.3 billion Eurobond issue. High domestic yields therefore helped attract foreign currency while also contributing to high financing costs inside Nigeria.
Stronger reserves can reduce exchange-rate risk for banks and borrowers, while lower government yields can weaken the incentive for banks to hold securities instead of extending loans. Neither change, however, automatically produces broader access to credit. The cash reserve requirement remains at 45%, private-sector credit is still below its February peak, and lending to manufacturing has yet to show a sustained recovery. The next evidence will come from bank loan books, lending rates and the distribution of new credit across sectors