"Nigeria's Banks Shift Focus: Lending Dips as Deposits with CBN Surge to Over N17 Trillion Amid Economic Challenges"

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 The lending landscape in Nigeria's banking sector is undergoing significant changes as banks increasingly withdraw from financing the real sector. This shift comes amid rising threats to the business environment, including insecurity, supply chain disruptions, inflation, and declining purchasing power. As a result, banks' deposits with the Central Bank of Nigeria (CBN) surged to N17.83 trillion in April 2025, marking a staggering 243% increase from N5.2 trillion in March 2025.




Key Developments

Surge in Deposits: Financial data from the CBN indicates that banks and merchant banks deposited a total of N37.05 trillion with the central bank in the first four months of 2025. This represents a dramatic year-on-year increase of 1549% compared to N2.25 trillion during the same period in 2024. The increase in deposits reflects a growing trend among banks to prioritize liquidity over lending amid economic uncertainty.

Monetary Policy Impact: The CBN's Standing Deposit Facility (SDF) data shows a consistent rise in bank deposits since the start of the year, driven by ongoing concerns regarding interest rates and inflation. The SDF allows Deposit Money Banks (DMBs) to deposit funds overnight with the CBN, earning interest, which has become an attractive option for banks seeking to manage liquidity.

Decline in Lending: Despite the increase in deposits, lending to the private sector has declined. In February 2025, credit extended by the banking sector to the private sector fell by 1.3% month-on-month and 8.6% year-on-year, reflecting the CBN's tight monetary policy to control inflation. This lending contraction indicates banks' reluctance to finance the real sector, which is crucial for economic growth.

Expert Opinions

Economic experts have called for the CBN to incentivize banks to increase their lending to the real sector, particularly to Micro, Small, and Medium Enterprises (MSMEs) and the agricultural industry. Without targeted incentives, the ongoing bank recapitalization efforts may not translate into increased financial support for industries significantly contributing to job creation and GDP growth.

Professor Uche Uwaleke emphasized the need for banks to redirect their lending towards sectors with a higher economic impact rather than continuing to favour industries like oil and gas, which currently dominate credit allocation.

The current banking trends in Nigeria highlight a critical juncture for the economy. As banks prioritize deposits with the CBN over lending to the real sector, the potential for economic growth may be stifled. Stakeholders urge the CBN to implement strategies encouraging banks to support industries that drive job creation and economic expansion. This ensures that the quest for a robust economy is not merely a theoretical goal but a practical reality.

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