Deposit Money Banks (DMBs) slashed lending to oil and gas, information and communication technology (ICT) and six other key sectors of the economy by N5.45 trillion or 14.8 per cent, year-on-year (YoY), in 2025, reflecting the impact of the Central Bank of Nigeria’s (CBN) withdrawal of regulatory forbearance and banks’ loan portfolio clean-up.

Regulatory forbearance is a central bank policy that temporarily allows financial institutions to maintain operations and restructure bad loans even if they fall below strict capital or asset-quality requirements. It is designed to prevent bank failures and widespread credit crunches during economic crises.

As at first quarter of 2025 the total amount of money tied up in the CBN’s regulatory forbearance loans for seven major banks was $4.01 billion (over ¦ 6 trillion). This figure represents high-risk credit exposures and breaches of the Single Obligor Limit (SOL) that the apex bank had temporarily permitted. The withdrawal in 2025 compelled the banks to pay the monies to CBN, leaving them with reduced capacity to grant loans.

Affected sectors

In addition to the oil and gas and ICT sector, other affected sectors are Construction, Education, Manufacturing, Real Estate and General Services.

Latest CBN data on Deposit Money Banks’ Sectoral Distribution of Credit showed that credit to the eight sectors declined to N31.31 trillion in 2025 from N36.77 trillion in 2024.

According to the CBN data, General Services recorded the steepest decline, with credit falling by 25.02 per cent to N4.35 trillion from N5.80 trillion, representing a reduction of N1.45 trillion. Manufacturing followed with a 22.52 per cent decline as credit dropped to N6.61 trillion from N8.53 trillion, translating to a contraction of N1.92 trillion.

Real Estate also recorded a 17.2 per cent decline, with bank credit dropping to N792.71 billion from N957.38 billion. Credit to Oil and Gas (Services) fell by 12.35 per cent to N4.85 trillion from N5.53 trillion, while Oil and Gas (Industry) declined by 8.77 per cent to N10.59 trillion from N11.61 trillion.

Other sectors that witnessed lower credit allocation include Information and Communication, where lending fell by 7.51 per cent to N1.76 trillion from N1.90 trillion; Education, which recorded a 5.73 per cent decline to N84.13 billion from N89.25 billion; and Construction, where credit dropped by three per cent to N2.29 trillion from N2.36 trillion.

Explaining the development, Head of Equity Research at Quest Merchant Bank, Tunde Abioye, attributed the contraction mainly to the CBN’s decision to end regulatory forbearance on troubled loans.

He said: “The major reason for the decline in loans to certain sectors was the removal of regulatory forbearance on challenged loans by CBN. This lifting of forbearance resulted in sizable write-offs of loans by banks, which ultimately resulted in a contraction in banks’ and the industry’s loan book. The most affected sectors were the oil and gas and manufacturing sectors.”

Abioye added: “A likely implication is that banks will tighten their risk management frameworks and credit approval processes. There will be increased scrutiny of prospective loans.”

Corroborating the position, Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, said: “The industry loan book was largely shaped by the write-offs associated with the forbearance termination.

“Similarly, improved liquidity in the foreign exchange market moderated the demand for trade loans, which formed a significant proportion of the loans to the manufacturing sector.”

It reflects structural challenges — MAN

The Manufacturers Association of Nigeria (MAN), however, argued that the sharp decline in manufacturing credit reflects deeper structural challenges confronting the sector beyond the recent loan clean-up by banks. Nigerianbusiness insights

MAN’s Director-General, Segun Ajayi-Kadir, in response to Financial Vanguard, described the 22.5 per cent contraction in manufacturing credit as disturbing, warning that it threatens Nigeria’s industrialisation drive.

It noted that while manufacturing credit fell by N1.92 trillion in 2025, countries such as India and Vietnam deliberately expanded bank lending to industry to stimulate production, underscoring Nigeria’s widening competitiveness gap.

MAN blamed the development on prohibitively high lending rates, stringent banking conditions, elevated Cash Reserve Ratio (CRR), the CBN’s suspension of direct development finance interventions and the delayed implementation of the proposed N1 trillion Manufacturing Stabilisation Fund.

According to the association, manufacturers continue to face average prime lending rates of about 27 per cent and maximum lending rates exceeding 35 per cent, making long-term investment in factories commercially unviable.

It added that banks’ increasing preference for lower-risk financial assets over productive sectors has further constrained access to credit by manufacturers.

The association warned that shrinking credit to manufacturing could reduce capacity utilisation, delay technology upgrades, trigger factory closures and job losses, while increasing Nigeria’s dependence on imports and worsening supply-side inflation. It also cautioned that inadequate financing could frustrate implementation of the Nigeria Industrial Policy and undermine efforts to diversify the economy away from oil.

To reverse the trend, MAN urged the CBN and the Federal Government to further reduce interest rates, lower the CRR for banks supporting manufacturers, recapitalise the Bank of Industry, operationalise the N1 trillion Manufacturing Stabilisation Fund and introduce government-backed credit guarantees to encourage lending to the real sector.

Agric, finance, others get more

But despite the decline in lending to several sectors, banks increased credit to agriculture, finance and several others by N11.42 trillion during the period.

Agriculture recorded a 26.4 per cent, YoY increase to N3.61 trillion from N2.85 trillion, while Finance, Insurance and Capital Market attracted N9.24 trillion from N7.75 trillion, representing a 19.29 per cent YoY increase.

The most dramatic expansion occurred in the “Others” category, where bank credit surged by 722.19 per cent YoY to N9.11 trillion from N1.11 trillion, accounting for N8.01 trillion or about 70 per cent of the total additional credit extended to the nine sectors that recorded growth.

Government credit rose by 13.51 per cent YoY to N3.27 trillion from N2.88 trillion, while lending to Power and Energy (Industry) increased by 31.29 per cent YoY to N1.49 trillion. Transportation and Storage also rose by 18.12 per cent YoY to N1.77 trillion.

Abioye linked the rise in lending to finance and insurance to the prevailing high interest rate environment.

He said: “Credit expansion to finance and insurance can be linked to the elevated market rates due to the CBN’s tight monetary posture. Banks and other financial institutions, including pension funds and asset management companies, have benefited greatly from the level of interest rates. As such, credit allocation to the sector continues to grow. The sector is also one of the best-performing sectors of the economy, delivering double-digit GDP growth.” Looking ahead, Olubunmi expressed optimism that lending will rebound this year. “With the conclusion of the portfolio clean-up exercise and the recapitalisation of the banks, we anticipate a significant increase in exposure to the crucial sectors of the economy in 2026,” he said.

Abioye also expects banks to redirect lending to sectors with stronger growth prospects, including telecommunications and ICT, manufacturing, oil and gas, real estate and construction.