Private Sector Credit Stalls At 17% Despite Bank Recapitalisation — CPPE

Nigeria’s private sector credit has remained weak at about 17 per cent of Gross Domestic Product (GDP) despite the successful completion of the banking sector recapitalisation exercise, the Centre for the Promotion of Private Enterprise has said.

The Chief Executive Officer of CPPE, Muda Yusuf, on Sunday acknowledged that the recapitalisation programme implemented by the Central Bank of Nigeria has significantly strengthened the resilience, stability and capacity of the country’s banking system.

However, he warned that the expected transmission of these gains to the real economy remains largely limited.

According to the CPPE, evidence as of March 27, 2026, indicates that 32 banks have met the new minimum capital requirements, with the exercise described as orderly, non-disruptive and confidence-enhancing. Notably, there were no reported cases of depositor losses, forced mergers, job losses or erosion of shareholder value, marking a clear departure from previous consolidation exercises.

Despite this progress, the organisation stressed that the critical objective of stimulating economic growth through increased lending to productive sectors has yet to be achieved.

It noted that Nigeria’s private sector credit-to-GDP ratio remains significantly below the sub-Saharan African average of about 25 per cent and far behind peer economies such as South Africa, Mauritius and Cape Verde, where credit penetration is substantially higher.

The CPPE further highlighted severe credit constraints across key segments of the economy, particularly among consumers and small and medium enterprises (SMEs).

Consumer credit, it said, accounts for only about seven per cent of total credit in Nigeria, compared to a regional average of between 15 and 25 per cent, thereby limiting domestic demand and overall economic expansion.

More concerning, the report revealed that SME credit represents just one per cent of total bank lending, far below the sub-Saharan African average of about five per cent.

This is despite the sector’s significant contribution of nearly 50 per cent to GDP and over 80 per cent to employment.

The financing gap for SMEs in Nigeria is estimated at about N48 trillion, underscoring what the CPPE described as a major structural weakness in the financial system.

The policy brief also identified structural imbalances in credit allocation, noting that a large proportion of bank lending remains short-term. Loans with maturities of less than one year account for about 55 per cent of total credit, while long-term financing, critical for sectors such as manufacturing, agriculture, infrastructure and real estate, accounts for only 25 per cent.

In addition, sectoral distribution of credit remains skewed in favour of the services sector, which receives about 55 per cent of total lending.

In contrast, manufacturing accounts for only 14 per cent, while agriculture receives a mere five per cent, a trend considered inconsistent with Nigeria’s economic diversification and industrialisation goals.

The CPPE attributed the weak linkage between the banking sector and the real economy to several factors, including the crowding-out effect of high government borrowing, a tight monetary policy environment, elevated interest rates, and stringent collateral requirements that limit access to credit for SMEs.

It also pointed to incentive structures within the financial system that favour short-term, low-risk investments over long-term lending to productive sectors.

In light of these challenges, the organisation called for a strategic shift in policy focus from capital adequacy to credit expansion. It urged monetary and fiscal authorities to prioritise measures aimed at increasing private sector credit to at least 30 per cent of GDP in the medium term.

Recommended interventions include de-risking SME lending through credit guarantee schemes, strengthening credit infrastructure, improving monetary policy transmission to ensure lower interest rates translate into real sector lending, and incentivising long-term financing for critical sectors of the economy.

The CPPE also emphasised the need to address the crowding-out impact of government borrowing and to promote a more balanced sectoral allocation of credit, alongside expanding access to consumer credit to stimulate aggregate demand.

While commending the Central Bank of Nigeria for delivering a successful and non-disruptive recapitalisation programme, the organisation stressed that the ultimate success of the reform would be judged by its impact on investment, enterprise development, job creation and overall economic transformation.

“The priority at this stage,” Yusuf noted, “must shift from strengthening bank balance sheets to ensuring that banks effectively support the real economy.”

He added that Nigeria requires not just stronger banks, but a banking system that actively drives growth, supports businesses and delivers broad-based economic development.