Nigeria’s banking system recorded a significant surge in liquidity in the first quarter of 2026, but the increase has not translated into commensurate growth in private sector credit, raising concerns about the transmission of monetary policy to the real economy. According to latest data from the Central Bank of Nigeria, total banking system liquidity rose by over 18 per cent in March, driven by increased FAAC allocations, reduced cash reserve requirements, and higher oil-related revenues flowing into the system.
However, private sector credit grew by only 6 per cent over the same period, suggesting that banks are parking excess liquidity in government securities rather than lending to businesses. The yield on Nigerian Treasury bills, which has remained attractive due to tight monetary policy, continues to draw bank funds away from riskier commercial lending. The spread between deposit rates and lending rates also widened, indicating that banks are prioritizing margin preservation over volume expansion.
From an economic perspective, the disconnect between banking liquidity and credit creation has significant implications for investment and job creation. Small and medium-sized enterprises, which drive the majority of employment in Nigeria, often face the highest borrowing costs and most stringent collateral requirements. Without access to affordable credit, these firms cannot expand capacity, invest in equipment, or hire additional workers. The manufacturing sector, already struggling with high energy costs, is particularly sensitive to credit availability.
The CBN has signalled its intention to maintain a tight monetary stance to anchor inflation expectations. However, some analysts argue that targeted measures to encourage bank lending to priority sectors, such as agriculture, manufacturing, and renewable energy, could help channel excess liquidity into productive use without fuelling inflation. The central bank may also consider adjusting the asymmetric corridor or introducing sector-specific reserve requirements to improve credit allocation. For now, the banking system remains liquid but cautious, waiting for clearer signals on interest rates and economic direction.
