Nigerian Deposit Money Banks (DMBs) reduced lending to eight major sectors by N5.45 trillion in 2025 after the Central Bank of Nigeria (CBN) ended its regulatory forbearance framework, forcing lenders to reassess risky exposures and strengthen loan portfolios.
Total credit extended to manufacturing, oil and gas, real estate, construction, information and communication technology (ICT), education, general services and other key sectors declined to N31.31 trillion in 2025 from N36.77 trillion recorded in the previous year, representing a 14.8% drop.
The decline followed the removal of temporary regulatory measures by the CBN that had allowed Nigerian banks to restructure stressed loans, delay certain provisions and maintain lending relationships with borrowers affected by economic disruptions. The policy change increased pressure on banks to recognise weaker assets, increase provisions for non-performing loans (NPLs) and preserve capital, limiting their ability to expand credit to businesses.
Manufacturing Sector Records Largest Lending Decline
The manufacturing sector recorded the largest reduction in bank credit during the period, with lending falling by N1.92 trillion to N6.61 trillion. Manufacturers have faced increased operating costs due to currency depreciation, higher import costs and foreign exchange challenges affecting access to raw materials and production inputs.
The depreciation of the naira also increased the local currency value of some foreign currency-related exposures, pushing some loans closer to regulatory concentration limits. With the end of forbearance measures, banks reduced exposure to comply with lending regulations and manage capital requirements.
General Services Credit Falls by N1.45 Trillion
Credit to the general services sector declined by N1.45 trillion to N4.35 trillion in 2025. The sector, which includes hospitality, logistics and professional services, experienced pressure from weaker consumer demand, rising operational expenses and higher financing costs. Banks became more selective in extending loans to businesses in these segments as they adjusted lending strategies following the stricter regulatory environment.
Oil and Gas Lending Contracts as Banks Reduce Exposure
Bank lending to Nigeria’s oil and gas sector also declined during the year as financial institutions reduced exposure to a sector that has historically accounted for a significant share of corporate lending. Credit to oil and gas services dropped by 12.35% to N4.85 trillion, while lending to the broader oil and gas industry declined by 8.77% to N10.59 trillion.
The reduction came as banks reviewed legacy exposures and sought to limit concentration risks in the sector. The end of regulatory relief measures required lenders to reassess the quality of existing oil and gas loans and allocate more capital towards risk management.
Real Estate Credit Drops 17.2%
Real estate lending recorded a 17.2% decline, falling to N792.71 billion as higher interest rates and increased construction costs affected demand for property financing. The sector has faced challenges from elevated borrowing costs following the CBN’s monetary tightening measures aimed at controlling inflation.
Developers and property investors relying on long-term financing have experienced increased repayment pressures, leading banks to adopt more cautious lending approaches. Construction, ICT and education sectors also recorded declines as lenders prioritised liquidity management and reduced exposure to sectors viewed as carrying higher repayment risks.
CBN Ends Regulatory Forbearance Framework
Regulatory forbearance was introduced as a temporary measure to provide banks with flexibility during periods of economic disruption. During the COVID-19 pandemic and subsequent economic shocks, including currency depreciation pressures, the CBN allowed banks to restructure certain loans without immediately classifying them as non-performing. The framework also provided temporary flexibility around single obligor limits, which restrict how much credit a bank can extend to one borrower or corporate group, as well as loan-loss provisioning requirements.
While the measures supported borrowers during periods of economic stress, they delayed full recognition of some stressed assets on bank balance sheets. In 2025, the CBN moved to end the framework as part of efforts to improve transparency in the banking sector and ensure lenders maintain stronger asset quality standards.
Banks Face Pressure from Rising Non-Performing Loans
The removal of regulatory forbearance resulted in increased recognition of stressed loans across the banking sector. Nigeria’s banking industry non-performing loan ratio rose to about 7%, exceeding the CBN’s prudential threshold of 5%. The increase required banks to allocate more earnings towards credit impairment charges and loan-loss provisions. The additional provisioning requirements reduced funds available for new lending and contributed to the decline in credit growth across major economic sectors.
Banks Shift Funds towards Government Securities
As lending risks increased, Nigerian banks redirected more liquidity towards government securities, including Federal Government of Nigeria (FGN) bonds and Treasury bills. Higher yields on government instruments provided banks with lower-risk investment alternatives compared with lending to businesses facing economic uncertainty. The shift reduced the amount of financing available to productive sectors such as manufacturing, infrastructure and private enterprises.
Recapitalisation Push Adds Pressure on Banks
The decline in lending coincides with the CBN’s recapitalisation directive requiring banks to increase their minimum capital levels. Tier-one banks are expected to raise significant additional capital to strengthen their balance sheets and improve their ability to support economic activity. The reduction in credit following the end of regulatory forbearance has increased focus on the need for stronger capital buffers that can allow banks to absorb losses while maintaining lending capacity.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.