Banks Cut Lending by N5.45tn as CBN Loan Clean-Up Hits Manufacturing, Oil, ICT

Nigeria's Deposit Money Banks (DMBs) reduced lending to eight major sectors of the economy by N5.45 trillion in 2025 as the banking industry adjusted to the Central Bank of Nigeria's (CBN) withdrawal of regulatory forbearance and embarked on a broad clean-up of loan portfolios.

Latest data released by the CBN shows that total credit to the affected sectors fell by 14.8 per cent year-on-year, declining from N36.77 trillion in 2024 to N31.31 trillion in 2025.

The sectors most affected include manufacturing, oil and gas, information and communication technology (ICT), construction, education, real estate and general services.

The sharp contraction comes after the CBN ended its regulatory forbearance policy, a temporary measure that previously allowed banks to restructure non-performing loans without immediately breaching prudential regulations during periods of economic stress.

Industry data indicates that, as of the first quarter of 2025, seven major Nigerian banks had more than $4.01 billion (over N6 trillion) tied to loans covered by the regulatory forbearance arrangement. With the policy withdrawn, banks were required to regularise those exposures, reducing their capacity to extend fresh credit.

Manufacturing Records Biggest Loss

Manufacturing suffered the largest decline in lending during the period.

According to the CBN, bank credit to the sector fell by 22.52 per cent, dropping from N8.53 trillion in 2024 to N6.61 trillion in 2025, a decline of N1.92 trillion.

General Services followed closely, with lending falling by 25.02 per cent from N5.80 trillion to N4.35 trillion, representing a reduction of N1.45 trillion.

Other sectors also recorded notable declines:

Oil and Gas (Industry): N11.61tn to N10.59tn (-8.77%)

Oil and Gas (Services): N5.53tn to N4.85tn (-12.35%)

Real Estate: N957.38bn to N792.71bn (-17.2%)

ICT: N1.90tn to N1.76tn (-7.51%)

Construction: N2.36tn to N2.29tn (-3%)

Education: N89.25bn to N84.13bn (-5.73%)

Experts Link Decline to CBN Policy Shift

Head of Equity Research at Quest Merchant Bank, Tunde Abioye, attributed the sharp decline primarily to the CBN's decision to discontinue regulatory forbearance.

According to him, banks were compelled to write off a substantial volume of troubled loans, resulting in a contraction of their overall loan books.

"The major reason for the decline in loans to certain sectors was the removal of regulatory forbearance on challenged loans by the CBN," Abioye said.

He explained that banks are now expected to strengthen their risk management frameworks and subject future lending decisions to greater scrutiny.

Head of Financial Institutions Ratings at Agusto & Co., Ayokunle Olubunmi, shared a similar view.

According to him, the withdrawal of regulatory forbearance significantly reshaped banks' loan portfolios, while improved liquidity in Nigeria's foreign exchange market also reduced demand for trade finance, particularly within the manufacturing sector.

MAN Raises Alarm

The Manufacturers Association of Nigeria (MAN) warned that the decline in manufacturing credit reflects deeper structural problems beyond banks portfolio adjustments.

Reacting to the figures, MAN Director-General Segun Ajayi-Kadir described the 22.5 per cent decline in manufacturing lending as alarming, warning that it threatens Nigeria's industrialisation ambitions.

He noted that while Nigeria experienced a significant reduction in manufacturing credit, countries such as India and Vietnam have continued expanding industrial financing to stimulate production and strengthen competitiveness.

According to MAN, manufacturers are still burdened by:

Average prime lending rates of about 27 per cent

Maximum lending rates above 35 per cent

High Cash Reserve Ratio (CRR)

Suspension of several CBN development finance programmes

Delay in implementing the proposed N1 trillion Manufacturing Stabilisation Fund

The association warned that continued restrictions in access to finance could reduce factory capacity utilisation, delay technology upgrades, trigger job losses, increase imports and worsen inflationary pressures.

To address the situation, MAN urged the Federal Government and the CBN to lower lending rates, reduce the CRR for banks supporting manufacturers, recapitalise the Bank of Industry, operationalise the Manufacturing Stabilisation Fund and introduce government-backed credit guarantees for the real sector.

Agriculture, Finance Receive More Funding

Despite the overall contraction, lending increased significantly in several sectors.

Agriculture recorded a 26.4 per cent increase, with credit rising from N2.85 trillion to N3.61 trillion.

The Finance, Insurance and Capital Market sector also attracted more funding, rising by 19.29 per cent from N7.75 trillion to N9.24 trillion.

The biggest increase occurred under the CBN's "Others" category, where lending surged by 722.19 per cent, rising from N1.11 trillion to N9.11 trillion.

Government borrowing also increased by 13.51 per cent to N3.27 trillion, while lending to Power and Energy (Industry) climbed 31.29 per cent to N1.49 trillion. Credit to Transportation and Storage also rose by 18.12 per cent, reaching N1.77 trillion.

Abioye attributed the increased lending to finance and insurance to the prevailing high interest rate environment, noting that financial institutions have benefited significantly from elevated yields and remain among the fastest-growing sectors of the economy.

Outlook for 2026

Despite the contraction recorded in 2025, analysts believe lending could recover this year.

Olubunmi expressed optimism that with banks largely completing their loan portfolio clean-up and recapitalisation programme, lending to critical sectors would improve in 2026.

Abioye also expects banks to gradually redirect credit towards sectors with stronger long-term growth prospects, including telecommunications and ICT, manufacturing, oil and gas, real estate and construction.