Nigeria: AfDB Raises Concern Over Weak Private Sector Credit in Nigeria

Nigeria’s financial system is falling short in supporting private sector expansion, with lending to businesses accounting for just 9.4 per cent of the country’s Gross Domestic Product (GDP), according to the African Development Bank (AfDB).

The development finance institution disclosed this in its African Economic Outlook 2026 report, highlighting Nigeria as one of the weakest-performing major African economies in terms of private sector credit provision — a key indicator of financial sector depth and economic productivity.

The report revealed that while countries such as Kenya and Egypt have made relatively stronger progress in extending credit to businesses, Nigeria continues to lag behind both regional and emerging market peers.

“Major African economies such as Kenya (31.6 per cent), Egypt (28.3 per cent), Côte d’Ivoire (21.4 per cent), and Nigeria (9.4 per cent) remain well below comparable emerging lower-middle-income market economies such as Vietnam (121.6 per cent), Malaysia (121.5 per cent), and Chile (111.8 per cent),” the report stated.

Africa’s Credit Gap Persists

According to the AfDB, Africa’s average domestic credit to the private sector stood at 34.6 per cent of GDP between 2020 and 2024 — the lowest among global regions and lower than levels recorded in the preceding decade.

The bank attributed the trend to weak financial intermediation, poor domestic savings mobilisation, and regulatory inefficiencies that continue to limit business financing across the continent.

Most financial institutions, the report noted, remain heavily concentrated on short-term, low-risk investments rather than long-term financing capable of driving industrialisation, entrepreneurship, and sustainable economic development.

“Low intermediation implies that Africa’s financial institutions are unable to optimally support the development of the private sector and contribute meaningfully to economic growth and development,” the AfDB said.

For Nigeria and other African economies, the trend raises concerns around risk assessment, financial compliance, and broader economic resilience, especially as businesses struggle to access affordable capital.

Weak Savings, Regulatory Gaps Hamper Lending

The AfDB identified low savings mobilisation as another major constraint affecting banks’ lending capacity. Across Africa, deposit-to-GDP ratios remain low, with the continental median staying below 32 per cent.

The report further noted that gross domestic savings averaged just 16.6 per cent of GDP between 2021 and 2024, significantly below the global average of 27.3 per cent.

Weak savings mobilisation, according to the lender, restricts banks’ ability to expand balance sheets and access stable, low-cost funding sources necessary for long-term financing.

In addition, the AfDB pointed to weaknesses in the regulatory framework governing lending markets. It stated that poorly designed or inconsistently enforced policies increase uncertainty and raise operational costs for financial institutions, ultimately discouraging lending to businesses.

The report also cited weak collateral enforcement systems, lengthy judicial processes, and strict prudential requirements as factors increasing perceived lending risks.

Such conditions, it explained, often push banks toward lower-risk borrowers and government securities rather than private enterprises — particularly small and medium-sized businesses.

“Countries with strong regulatory frameworks tend to have higher private sector credit as a share of GDP,” the AfDB noted.

The findings reinforce broader conversations around regulatory risk management, compliance management, and stronger internal controls needed to build more resilient financial systems capable of supporting private enterprise growth.

Nigeria’s Financial System Remains Shallow

In its assessment of Nigeria, the AfDB described the country’s financial system as relatively shallow, noting that stock market capitalisation averaged just 11.8 per cent of GDP between 2020 and 2024 — among the lowest on the continent.

The bank warned that Nigeria faces mounting challenges in mobilising large-scale financing needed to bridge infrastructure deficits and sustain social spending.

These challenges, the report said, stem largely from weak domestic revenue mobilisation, a sizeable informal economy, and a narrow productive base.

To address the financing gap, the AfDB recommended deeper reforms within financial markets and increased deployment of innovative financing mechanisms, including green bonds, blended finance, public-private partnerships, and debt-for-development swaps.

The institution also called for stronger partnerships with development finance institutions to improve domestic resource mobilisation and channel financing more effectively.

The report comes amid growing concerns that elevated interest rates and rising government borrowing are limiting credit access for businesses, particularly small and medium-sized enterprises (SMEs), despite ongoing efforts to stimulate private sector-led economic growth.

Earlier, economist and Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, cautioned that increasing Federal Government borrowing from the domestic financial system is gradually crowding out private sector financing, as banks increasingly prioritise low-risk government securities over business lending.