“Crowding Out”: Banks Loan N34.2trn to Govt as Private Sector Gasps for Credit

ABUJA — Fresh data from the Central Bank of Nigeria (CBN) has confirmed fears of a “crowding out” effect in the economy, revealing that banks aggressively ramped up lending to the government in December 2025 while private businesses struggled to access funds.

The Money and Credit Statistics released on Tuesday show a stark disparity in lending behavior. While credit to the private sector managed a sluggish 1.6% recovery to close the year at N75.83 trillion, credit to the government exploded by nearly 30% in just one month.

This surge in state borrowing has reignited concerns that the federal government’s appetite for domestic debt is sucking liquidity away from the real sector, forcing manufacturers and SMEs to compete for “crumbs” at elevated interest rates.

The Numbers: A Tale of Two Borrowers

The CBN data paints a clear picture of where the money went in December 2025:

• Credit to Government (Net): Surged to N34.22 trillion, a massive leap from N26.35 trillion in November. This represents a 29.9% increase in a single month.
• Credit to Private Sector (CPS): Inched up to N75.83 trillion, rising by a modest 1.6% from N74.63 trillion in November.

Analysts attribute the spike in government borrowing to the intense fiscal pressure to fund the 2025 supplementary budget and clear outstanding obligations before the fiscal year closed.

Private Sector “Crowded Out”?

While the N75.83 trillion figure for the private sector represents a recovery from the year’s low of N72.53 trillion in September, it still lags significantly behind inflation.

• The Trend: Throughout late 2025, private sector credit suffered repeated contractions (falling 4.4% in September) as banks grew risk-averse.
• The Reality: With the government offering high yields on risk-free securities (Treasury Bills and Bonds), banks found it more profitable and safer to lend to the state than to factories or farms.

“The government is effectively eating the private sector’s lunch,” noted Samuel Onyema, a Lagos-based financial analyst. “When banks can earn double-digit returns lending to the sovereign without lifting a finger, they have zero incentive to take risks on SMEs.”

Fintechs Fill the Void

As traditional banks retreat to the safety of government bonds, fintechs are stepping in to save small businesses. The report highlights that digital lenders like Moniepoint disbursed over N1 trillion in loans to SMEs in 2025 alone, effectively functioning as the “shadow banking” system that kept the informal economy alive during the credit crunch.

Outlook for 2026

The CBN Governor, Olayemi Cardoso, has promised that the recapitalisation exercise will equip banks to lend more to the real sector in 2026. However, unless the government curbs its domestic borrowing appetite, the “crowding out” phenomenon threatens to stifle the projected 4.49% GDP growth for the new year.

For now, the message from the data is clear: The government is the banks’ favorite customer, and everyone else is just waiting in line.