The Federal Government’s borrowing from the banking sector increased dramatically by N17.39 trillion (75.6%) over the 12 months ending in May 2026, reaching a total of N40.38 trillion, according to the latest monetary and credit statistics released by the Central Bank of Nigeria (CBN).
This sharp rise highlights the government’s growing reliance on domestic financing even as the CBN maintains a tight monetary policy to control inflation.
On a month-on-month basis, credit to the government expanded further by N779.70 billion from N39.60 trillion in April, showing no signs of slowing down.
Banks Shift Focus to Government Debt
Commercial and merchant banks have increasingly directed liquidity toward low-risk government securities such as Treasury bills and FGN bonds, rather than lending aggressively to the private sector. This preference for sovereign debt reflects a strategic recalibration of risk appetite amid prevailing macroeconomic uncertainties.
In comparison, private sector credit grew more modestly to N81.04 trillion in May, up from N80.59 trillion the previous month. Although private sector lending remains significantly larger in absolute terms (roughly twice the size of public sector credit), its growth has been relatively subdued.
Potential Crowding Out of Private Sector
Economic analysts say the heavy tilt toward public sector borrowing risks creating a persistent “crowding out” effect. With banks favouring high-yield government instruments, access to affordable credit for businesses and manufacturers could become more constrained, potentially limiting investment, job creation, and overall economic expansion.
The data reflects the government’s strategy to finance its fiscal deficit through domestic debt markets while reducing dependence on direct Central Bank financing.
The CBN is yet to release a detailed sectoral breakdown of private sector credit for the period, but the overall trend points to a banking system that is increasingly oriented toward supporting government funding needs.
As fiscal pressures persist, the challenge for policymakers will be to strike a better balance between meeting public sector financing requirements and ensuring sufficient credit flows to the real economy to support sustainable growth.
