By Kehinde Ibrahim, Lagos
FOR the past two years, Nigeria’s economy has been challenged by access to affordable credit. Businesses, particularly manufacturers and small and medium-sized enterprises, have grappled with soaring borrowing costs triggered by the Central Bank of Nigeria’s aggressive monetary tightening aimed at curbing inflation and stabilising the foreign exchange market. Households have equally struggled under the weight of higher lending rates, forcing many to postpone major purchases and reduce reliance on bank credit.
Against the backdrop, fresh data from the Central Bank of Nigeria, CBN, provides encouraging signs that the country’s credit market may be entering a new phase. Although monetary conditions remain restrictive, commercial banks are beginning to demonstrate renewed confidence in extending loans to productive sectors of the economy. More importantly, borrowers are showing improved repayment capacity, resulting in lower default rates and stronger loan performance across major lending categories. Together, the trends suggest that Nigeria’s financial sector is gradually shifting from a period of caution and risk containment to one of measured optimism and economic support.
The latest Credit Conditions Survey released by the apex bank indicates that banks expanded the availability of credit during the second quarter of 2026, particularly for corporate and secured lending. Financial institutions also approved a larger proportion of loan applications than in the previous quarter while reporting declining default rates among both businesses and households. The survey offers one of the clearest indications yet the lenders are becoming increasingly comfortable supporting economic activity despite the country’s elevated interest rate environment.
The report arrives at a crucial period for the Nigerian economy. Over the last two years, sweeping economic reforms, exchange rate liberalisation and inflationary pressures have compelled monetary authorities to maintain one of the highest Monetary Policy Rates ,MPR, in recent history. The policy stance, while helping to moderate macroeconomic risks, has also significantly increased financing costs for businesses and consumers.
Despite these headwinds, the latest survey suggests that banks have begun adjusting to the new economic reality. Rather than simply preserving liquidity, financial institutions are increasingly deploying capital to productive sectors capable of stimulating investment, industrial expansion and employment. This shift reflects growing confidence that macroeconomic conditions, though still challenging, are becoming more predictable and that the risks associated with lending are gradually declining.
One of the strongest indicators of this renewed confidence is the sharp increase in corporate lending. According to the CBN, credit availability for corporate borrowers rose by 20.4 index points during the second quarter of 2026, while demand for corporate loans increased to 15.2 index points. Businesses sought additional financing to support working capital requirements, expand production capacity, invest in equipment and strengthen operational resilience in an increasingly competitive business environment.
The renewed appetite for corporate borrowing is particularly significant because access to finance remains one of the most important drivers of economic growth. Businesses depend on bank financing to expand operations, invest in technology, purchase machinery and create employment. As companies gradually adapt to Nigeria’s evolving macroeconomic landscape, improved access to credit could help unlock investments capable of accelerating industrial productivity and supporting broader economic recovery.
Equally noteworthy is the performance of secured lending, which emerged as the fastest-growing segment during the review period. The CBN reported that credit availability for secured loans increased by 25.2 index points, while demand rose to 15.1 index points. The expansion was driven largely by improving economic conditions, stronger liquidity within the banking system and strategic efforts by lenders to grow their market share.
For banks, secured lending provides an additional layer of comfort because collateral significantly reduces credit risk. Even in uncertain economic conditions, loans backed by tangible assets provide lenders with greater assurance of recovery should borrowers default. The strong performance of secured lending therefore reflects a balanced approach in which banks are expanding credit without compromising prudent risk management practices.
The picture, however, is less encouraging in the retail lending segment. Demand for unsecured loans remained relatively weak, recording a negative reading of 1.2 index points during the quarter. High borrowing costs, persistent inflation and declining purchasing power have discouraged many households from taking on additional debt. Although banks increased the availability of unsecured credit and approved more applications than in the previous quarter, consumer demand remained subdued, highlighting the financial pressures confronting many Nigerian families.
Perhaps the most encouraging finding contained in the survey is the steady improvement in loan quality across the banking sector. The CBN reported declining default rates across secured lending, unsecured lending and all major categories of corporate borrowers, including small businesses, medium-sized enterprises, large private non-financial corporations and other financial institutions.
Improved loan performance carries significant implications for the banking industry. Lower default rates reduce the volume of non-performing loans, strengthen banks’ balance sheets, improve profitability and reduce the need for costly loan loss provisions. Healthier loan portfolios also increase the capacity of financial institutions to extend additional credit while supporting overall financial system stability.
Industry analysts believed that sustained improvements in loan quality could encourage banks to gradually relax lending standards over the coming quarters, particularly if macroeconomic conditions continue to stabilise. Improved repayment behaviour also reflects stronger financial discipline among borrowers and growing confidence in the country’s economic direction.
The survey further revealed that banks approved a larger proportion of loan applications across secured, unsecured and corporate lending categories than they did during the previous quarter. Rising approval rates suggest that lenders are increasingly satisfied with borrowers’ financial profiles while businesses appear better positioned to meet banks’ credit assessment requirements. Easier access to financing could stimulate new investments, encourage business expansion and create additional employment opportunities across key sectors of the economy.
Another important development highlighted by the report is the gradual narrowing of lending spreads across several categories of borrowers. Interest rate spreads relative to the Monetary Policy Rate declined for unsecured household lending as well as medium-sized enterprises, large private corporations and other financial institutions. Although lending rates remain elevated, the reduction in spreads indicates growing competition among banks and improving confidence in the creditworthiness of borrowers.
Not all borrowers have benefited equally. Lending spreads for small businesses widened during the review period, reflecting the higher risks generally associated with financing smaller enterprises. Likewise, spreads on secured household lending increased relative to the Monetary Policy Rate, underscoring the cautious approach banks continue to adopt in consumer lending.
Separate data released by the CBN further reinforces the improving outlook for credit. Lending to Nigeria’s private sector increased to ₦83.26 trillion in June 2026 from ₦81.04 trillion in May, representing a month-on-month growth of approximately 2.74 per cent. The increase demonstrates that banks are gradually channeling more financial resources toward businesses and productive sectors despite operating under one of the tightest monetary policy environments in recent years.
Private sector credit remains one of the most reliable indicators of economic activity because it provides businesses with the financial resources required for expansion, investment and job creation. Economists generally consider sustained growth in productive lending a positive development, particularly when accompanied by improving loan quality and declining default rates.
In contrast, lending to government declined marginally during the same period. Credit to government fell to ₦40.03 trillion from ₦40.38 trillion in May. Although the reduction was relatively modest, analysts believe it may signal changing liquidity conditions within the banking system and could potentially create additional room for increased private sector lending.
Many economists have long argued that excessive government borrowing from domestic financial institutions crowds out private investment by limiting access to available credit. A gradual moderation in government borrowing could therefore strengthen financial intermediation and encourage greater investment by businesses.
Consumer lending, however, continues to reflect the difficult realities facing Nigerian households. According to the CBN’s 2025 Annual Report and Statement of Accounts, outstanding consumer credit declined by 19.89 per cent to ₦3.78 trillion from ₦4.72 trillion in the previous year. The decline marked the first contraction in consumer lending since December 2019 and underscores the impact of higher interest rates on household borrowing.
The reduction illustrates the uneven nature of Nigeria’s credit recovery. While businesses are gradually benefiting from improved access to finance, many households continue to struggle with elevated borrowing costs, rising living expenses and weaker purchasing power. Banks have equally become more cautious in extending retail loans amid prevailing economic uncertainties.
These developments are occurring against the backdrop of the Central Bank’s decision to retain the Monetary Policy Rate at 26.5 per cent. The Monetary Policy Committee has consistently maintained that controlling inflation and preserving macroeconomic stability remain its primary objectives, even though the policy stance has contributed to higher financing costs across the economy.
Private sector stakeholders, including the Centre for the Promotion of Private Enterprise, have repeatedly cautioned against further monetary tightening. Business groups argue that persistently high interest rates could weaken investment, discourage industrial expansion and slow economic recovery. Manufacturers and small businesses have similarly called for lower borrowing costs, insisting that affordable access to finance remains essential for sustainable growth.
Nevertheless, the latest Credit Conditions Survey suggests that Nigeria’s banking industry is gradually adapting to the prevailing monetary environment. Financial institutions appear to have strengthened their credit risk management frameworks sufficiently to support increased lending while maintaining sound asset quality.
Looking ahead, the outlook remains cautiously optimistic. If inflation continues to moderate, exchange rate conditions stabilise and ongoing economic reforms yield stronger results, banks may become even more willing to expand lending to productive sectors. However, significant risks remain, including global economic uncertainties, domestic inflationary pressures and election-related fiscal spending, all of which could influence future monetary policy decisions.
For now, the evidence points to a banking sector that is steadily rebuilding confidence in Nigeria’s credit market. Rising corporate lending, expanding secured financing, improving loan approvals, stronger private sector credit growth and declining default rates collectively signal that financial institutions are becoming more willing to support economic activity. Sustaining the momentum, however, will depend on striking a delicate balance between preserving macroeconomic stability and ensuring that businesses and households have access to affordable credit capable of driving long term investment, productivity and inclusive economic growth.
