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By Chinwendu Obienyi
Nigeria’s banking industry is heading into 2026 with the clearest signs yet that the worst of its credit slowdown is over, setting the stage for a rebound in private-sector lending after nearly two years of monetary tightening.
FBNQuest Merchant Bank stated this in a note on Monday.
Data from the Central Bank of Nigeria (CBN) show that private sector credit extension (PSCE) edged up just 0.3 per cent month-on-month (m/m) to N74.6 trillion in November 2025, but was still down 2 per cent from a year earlier, a rare contraction for Africa’s largest economy.
The weakness was the result of the CBN’s aggressive efforts to tame inflation and stabilise the naira, which pushed policy rates sharply higher and drained liquidity from the banking system. That restraint, however, has left banks better prepared for the next phase of the cycle.
In the background, liquidity conditions have quietly improved. Broad money supply rose 13 per cent year-on-year (y/y) to about N123 trillion in November, while net foreign assets surged 115 per cent to N37.4 trillion, reflecting a return of foreign portfolio inflows and stronger diaspora remittances.
Nigeria’s external reserves climbed by $4.6 billion over the year to $45.5 billion, easing the foreign-exchange shortages that paralysed credit creation in 2024 and early 2025.
Yet those gains have not fully translated into lending. A narrower measure from the CBN’s Quarterly Statistical Bulletin shows that deposit money banks, which still account for about 69 per cent of system-wide lending, had extended just N58.2 trillion of credit by mid-2025, a modest 4 per cent increase from a year earlier.
The gap of more than N16 trillion between that figure and total PSCE underscores the growing role of development finance institutions, microfinance lenders and non-interest banks in filling funding gaps while commercial banks stayed on the sidelines.
According to FBNQuest Merchant Bank, the turning point is expected this year.
“Inflation is projected to soften as exchange-rate stability improves and food supply pressures ease, creating space for the CBN to dial back its restrictive stance. That shift will come just as banks are completing a sweeping recapitalisation drive, leaving them with thicker capital buffers and stronger incentives to put that capital to work.
Fresh equity is expensive to sit on. Once policy rates begin to come down, banks will be under pressure from shareholders to grow their loan books again”, the bank said.
A reduction in lending to the federal government should also help. Credit to the public sector fell 33 per cent y/y in 2025, cutting the crowding-out that had diverted funds away from the private economy. With sovereign borrowing easing, banks are expected to refocus on manufacturers, traders and agribusinesses that have struggled to access affordable credit during the tightening cycle.
Economists now forecast private-sector credit growth of between 10 per cent and 15 per cent, compared with a contraction in 2025, with deposit money banks regaining their role as the dominant channel of financial intermediation.
