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Despite contributing approximately 90 per cent to the nation’s gross domestic product (GDP), the private sector has not been accorded a pride of place in lending by financial institutions. However, at its latest 303rd Monetary Policy Committee (MPC) meeting held in Abuja, the Central Bank of Nigeria (CBN) adjusted its policy to boost private sector lending by implementing measures that will incentivise commercial banks to lend more money to businesses rather than parking excess liquidity in the CBN’s Standing Deposit Facility (SDF).
SDF is a monetary policy tool used by the CBN to absorb excess liquidity from the banking system without requiring collateral. The banks can deposit such surplus funds to earn interest, which helps the CBN manage liquidity, maintain financial stability and control inflation. Henceforth, the apex bank will drastically reduce the potential returns that commercial banks earn on these idle funds domiciled in its SDF. The MPC’s policy adjustment aligns with recent decline in inflation pressures. The main objective is to stimulate economic growth by channelling more credit into productive sectors of the economy like agriculture, manufacturing and housing.
The policy will reduce significantly the deposits placed on CBN’s SDF. It will also make keeping idle funds less profitable, thereby nudging banks to lend to small and medium enterprises to facilitate stronger credit expansion essential for business investment, job creation, and the real sector. This move is timely and prudent. The private sector requires every monetary and fiscal measure to improve the economy, especially now that headline inflation is reducing amid macroeconomic progress, banking resilience and external reserves ticking up at over $46 billion that could cover a 10-month import.
With lower interest lending to the private sector, this could signal growing stability and investor confidence. The CBN should sustain this plan over a long period of time. It is a welcome development. Also, the MPC has deemed it necessary to reduce the interest accruing to SDF to 22.5 per cent from 24.5 per cent, a move principally aimed at discouraging banks from placing excess funds in the SDF window. The CBN has slashed the Standing Lending Facility (SLF) from 29.5 per cent to 27.5 per cent. This is a short-term monetary policy of the CBN that serves as a backstop to manage liquidity and allows banks with shortfalls to borrow funds and prevent excessive volatility in interbank lending rate.
The adjustment also complements the MPC’s anti-inflation stance by supporting investment. Until now, monetary policy instruments used by the CBN to incentivise the private sector included imposing additional Cash Reserve Ratio (CRR) levies on commercial banks that failed to meet the required lending targets. But now, the apex bank is using its regulatory powers to make a shift on how commercial banks utilise their liquidity, compelling them to become more active financial intermediaries to support economic growth rather than passive entities that rely on risk-free placements with the CBN.
We believe that making the commercial banks to lend more capital to the private sector at affordable cost will stimulate economic growth, business expansion and deployment of relevant technology. It will also create employment. The increase in investment will lead to higher productivity and more spending by consumers. This will encourage the growth of more SMEs. Lower interest rates can also make it cheaper for consumers to borrow for large purchases and investment in real estate. As a catalyst for economic growth, and a major contributor to the country’s GDP, we urge the government to sustain the progress made by the private sector.
Providing access to funds at affordable interest rates and creating an enabling business environment should top the list of what the private sector needs to play its role in the economy. That is why the government should swiftly tackle the prevailing insecurity across the country.
Its policies should be conducive to the private sector. Latest data show that government contributes a paltry 15 per cent to Nigeria’s GDP. This is not encouraging at all. We commend the apex bank for its latest plan to boost private sector participation in the economy.
Good enough, the CBN’s credit to the private sector has risen in recent months. This signals a rebound when the CBN slashed key benchmark interest rates for the first time in five years. The result was an increase in Private Sector Credit Extension (PSCE) to N74.4trillion, or 2.6 per cent growth in October 2025, up from N72.53trillion in September. According to report from the CBN, this indicates a renewed lending appetite to private firms. The government should check the factors that hinder private sector participation in the economy, which include multiple taxes, exchange rate volatility, erratic power supply and excessive bank charges.
