Services sector drives lending as industry credit contracts in one month

Nigeria’s credit landscape is showing a growing imbalance as bank lending tilts further toward the services sector, even as credit to industry contracts, raising fresh concerns about the strength of support for the country’s productive base.

Latest data from the Central Bank of Nigeria’s monthly economic report for November 2025 showed that total credit to the economy expanded marginally by 0.14 percent to N57.02 trillion, from N56.94 trillion in October. The modest growth was driven entirely by a 1.35 percent increase in lending to the services sector, underscoring its continued dominance in credit allocation.

In contrast, credit to the industry sector declined by 1.60 percent within the same period, highlighting persistent constraints facing manufacturing and other productive segments of the economy. Lending to agriculture remained flat, suggesting limited progress in expanding financing to a sector widely regarded as critical for food security and employment.

The distribution of credit further reflects this imbalance. The services sector accounted for 56.53 percent of total credit, far ahead of industry at 37.80 percent and agriculture at just 5.67 percent. The pattern reinforces a long-standing structural concern that bank lending is skewed toward less capital-intensive activities, with potentially weaker multiplier effects on growth, jobs, and exports.

Analysts say the contraction in industrial credit, despite slight overall growth, signals that high borrowing costs, foreign exchange constraints, and uncertain demand conditions continue to weigh on manufacturers. With maximum lending rates rising to 29.69 percent during the review period, many firms in the real sector are likely finding it increasingly difficult to access affordable financing for expansion.

The weakness in credit to the productive sectors comes at a time when consumer lending is also under pressure, reflecting broader economic strain. Consumer credit outstanding fell sharply by 13.32 percent to N3.19 trillion, from N.68 trillion in the preceding month, driven by contractions in both personal and retail loans. Personal loans, which remain dominant at 62.38 percent of consumer credit, declined by 6.57 percent, while retail lending accounted for the remaining 37.62 percent.

The drop in household borrowing points to weakening consumer demand and tighter financial conditions for individuals, as elevated interest rates and inflation continue to erode purchasing power. This trend could further dampen economic activity, given the role of consumption in driving growth.

At the same time, conditions in the banking system tightened during the period, with average liquidity falling to N0.19 trillion from N0.34 trillion in October. The decline was largely driven by the Central Bank’s liquidity management operations, including open market operations-backed foreign exchange swaps and auctions, cash reserve ratio debits, and foreign exchange sales.

The apex bank’s aggressive liquidity mop-up was further reflected in its use of OMO bills. During the month, N3.00 trillion was offered, N10.32 trillion subscribed, and N7.85 trillion allotted, at average stop rates of 21.15 percent. However, with N5.00 trillion in matured bills repaid, the operations resulted in a net liquidity withdrawal of N2.85 trillion from the system.

Despite the tighter liquidity environment, key money market rates trended downward, suggesting the impact of a slight easing in monetary policy. The average interbank call rate declined to 22.50 percent from 24.50 percent, while the open repurchase rate fell to 24.18 percent from 24.94 percent. Similarly, the Nigeria Interbank Offered Rate for call and 30-day tenors dropped to 24.53 percent and 25.35 percent, respectively.

Government debt market activity also remained robust, reflecting strong investor appetite for fixed income instruments. Treasury bills worth N1.35 trillion were offered across standard maturities, with subscriptions rising to N2.47 trillion and allotments to N1.74 trillion. Average stop rates increased to 15.70 percent, indicating higher yields amid continued demand.

In the bond segment, however, investor sentiment appeared more cautious. Although N0.46 trillion was offered and N0.58 trillion allotted, subscriptions declined significantly compared to the previous month. Marginal rates edged higher to 15.95 percent, reflecting upward pressure on yields.

Deposit rates showed a modest increase, with the weighted average term deposit rate rising to 10.81 percent from 10.59 percent. This slightly narrowed the spread between deposit and lending rates, though the gap remains wide, highlighting ongoing concerns about the cost of financial intermediation.

Overall, the data paints a picture of an economy where credit growth remains weak and uneven, with banks favouring the services sector while scaling back exposure to industry. The combination of high borrowing costs, tightening liquidity, and declining consumer credit suggests that financial conditions remain restrictive, despite early signs of policy easing.

For policymakers, the divergence in credit allocation poses a key challenge. Sustained economic growth will likely depend on reversing the decline in industrial lending and expanding access to finance for agriculture and other productive sectors, areas that hold the greatest potential for job creation, output expansion, and long-term resilience.