Nigeria's govt borrowing crowds out private credit as banks prefer 20% yield securities
Nigeria's heavy reliance on domestic borrowing is squeezing private sector credit as banks favor low-risk government securities offering ~20% yields over riskier business lending. IMF data shows banks hold government securities worth 22% of total assets, with private sector credit at ₦83.43 trillion in July 2026 (up ₦2.39 trillion from May but below February's ₦94.61 trillion peak).
This crowding-out effect threatens affordable long-term finance for manufacturers, SMEs and infrastructure projects needing funds for machinery, expansion and working capital. While bank recapitalization aimed to boost economy-supporting lending, experts warn banks may continue parking capital in govt securities unless yields drop or incentives shift, potentially leaving private borrowers competing for scarce funds.
FG finances large deficits domestically while debt-service costs consume revenue, making local borrowing attractive despite second-order effects on private credit access. IMF forecasts 14.2% private sector credit growth but notes persistent limitations from banks' sovereign debt holdings and tight monetary conditions.
Will recapitalized banks actually redirect new capital toward manufacturing and local production as experts urge, or will the lure of 20% risk-free govt yields keep starving businesses of affordable long-term finance?