Credit Crunch: 13.99% Decline in Net Domestic Credit
At the beginning of 2025, Deposit Money Banks saw a significant slowdown in credit issuance to both the private sector and the government. Net domestic credit dropped by 13.99%, falling from N155.5 trillion in November 2024 to N99.4 trillion in January 2025.
This decline marks a break from the trend of the past eight years, where net domestic credit has typically risen in January.
Several factors might be driving this slowdown in lending, such as the tightened monetary policies aimed at controlling inflation and stabilising the economy, which made credit more expensive.
Additionally, economic uncertainties, including rising inflation and market volatility, may have led banks to adopt a more cautious lending approach. The increasing number of loan defaulters has further heightened risk concerns, making banks more reluctant to extend credit to borrowers with uncertain repayment capacities.
Reduced liquidity, partly due to the devaluation of the Naira, has added more pressure on the banking system, also limiting the availability of funds for lending.
A closer look at net domestic credit in January 2025 reveals a sharp decline in credit to the government, which dropped by 38%, from ₦39.6 trillion in November 2024 to ₦24.5 trillion in January 2025.
Meanwhile, credit to the private sector saw a more modest decline of 1.4%, decreasing from ₦76 trillion to ₦74.9 trillion over the same period.
This contraction in domestic credit could have significant economic implications. The decline in government credit may force the government to explore alternative financing options, potentially increasing external debt as it seeks to cover budget shortfalls.
Similarly, while the reduction in private-sector lending is relatively small, it could still slow business expansion and investment. If these trends continue, they may weaken economic activity and contribute to slower GDP growth.
An analysis of macroeconomic trends in 2024 shows that rising interest rates had a significant impact on lending activities. Although lending grew by 21.4% between 2023 and 2024, this was a sharp slowdown compared to the 34.57% growth recorded between 2022 and 2023.
The Central Bank of Nigeria (CBN) raised interest rates by 875 basis points in 2024, increasing the benchmark rate from 18.75% in January to 27.5% in November.
The CBN’s Credit Conditions Survey Report reveals a significant rise in loan default rates across all lending categories in 2024, exceeding the levels recorded in both 2022 and 2023.
This trend suggests increasing financial distress among borrowers, likely driven by economic challenges such as high inflation, currency depreciation, and increased lending rates.
The rise in default rates likely led banks to tighten their lending criteria, further restricting credit availability and slowing overall lending activity.
Also, the Banker’s 2024 Top 100 African Bank Report revealed that a significant number of Nigeria’s Tier 1 banks experienced a notable decline in their capital base due to the sharp devaluation of the Naira in 2024. This depreciation eroded the value of their assets and weakened their capital positions, impacting their lending capacity.
The decline in capital reserves may have further constrained banks' ability to extend credit, exacerbating the broader slowdown in lending observed during the year.
The sharp decline in net domestic credit at the start of 2025 signals a shift in Nigeria's financial landscape, driven by tighter monetary policies, rising interest rates, economic uncertainties, and liquidity constraints. This has created a more restrictive lending environment, reducing credit availability for both the government and private sector.
The steep drop in government credit raises concerns over increased reliance on external borrowing, escalating debt servicing costs and fiscal risks. Meanwhile, the decline in private-sector lending threatens investment, business growth, and economic expansion.
Rising loan defaults and the capital erosion of Tier 1 banks signal mounting financial distress, further tightening credit supply and slowing economic activity.
To address these challenges, the CBN must balance inflation control with credit availability through liquidity support, exchange rate stabilisation, and risk-sharing mechanisms. Strengthening banking sector resilience is also key to long-term recovery.
Without proactive interventions, Nigeria risks prolonged economic stagnation. A strategic policy response is crucial to keeping the financial sector a driver of growth, not a constraint.
Nigeria’s Bilateral Air Services Agreements and the Need for Stronger Air Connectivity
Nigeria and Jamaica have proposed a direct flight route, strengthening ties between the two nations under the Bilateral Air Services Agreement (BASA). This initiative is expected to boost tourism, trade, and cultural exchange, marking a significant milestone in Nigeria’s international air transport policy.
Limited direct flight connections have hindered Nigeria’s integration into global aviation networks, reducing opportunities for economic expansion. The proposed Jamaica-Nigeria route could serve as a model for enhancing Nigeria’s air connectivity, especially given the country's low air connectivity index.
One of the key instruments facilitating international air travel and trade is the Bilateral agreements like the BASA. These agreements, signed between Nigeria and other nations, outline the terms under which airlines from both countries operate direct flights.
While Nigeria currently has BASAs with over 78 countries, only a fraction of these agreements have translated into active direct flight operations. Despite its extensive BASA network, the country’s direct international connectivity remains weak.
Direct flights drive regional integration, economic growth, and enhanced connectivity across diverse nationalities and expansive geographies. Beyond international direct flights being a major driver, intra-African air connectivity is crucial for Africa, as well as each country in Africa’s development.
By easing travel, strengthening diplomatic ties, and promoting international cooperation, direct flights also play a key role in improving visa openness across Africa. Countries linked by direct air routes are more likely to adopt visa policies that encourage investment, tourism, and cross-border collaboration.
Nigeria ranks among the top ten African nations with the highest number of direct flights to other African countries, offering connections to 22 destinations across the continent, according to African Airlines Association (AFRAA) data.
Nigeria’s Air Connectivity Barrier
According to the International Air Transport Association (IATA), air connectivity plays a crucial role in global trade by expanding access to foreign markets, facilitating the globalization of supply chains, and promoting international commerce.
The Air Connectivity Index measures how well a nation's air transportation networks contribute to its productivity and economic growth.
Nigeria ranks 75th in the world for air connectivity, but this ranking does not reflect the full potential of its economy and population size. Nigeria remains severely underserved in terms of air connectivity, limiting its participation in global trade.
Challenges Facing Nigeria’s Aviation Sector
Nigeria’s air connectivity remains weak, with most international routes dominated by foreign airlines. According to the International Air Transport Association (IATA), one of the key obstacles to improving Nigeria’s air connectivity is the state of its aviation sector.
Despite signing numerous BASAs over the years, many remain inactive due to regulatory bottlenecks and inadequate infrastructure. As a result, Nigeria has been unable to fully utilise the economic benefits of these agreements, limiting its integration into the global aviation network.
According to the National Integrated Infrastructure Master Plan, Nigeria's aviation sector faces several challenges that require urgent attention.
There is a pressing need to modernize and upgrade infrastructure, including terminal buildings, control towers, conveyor belts, instrument landing systems, communication equipment, runway lighting, and fire tenders.
Regulatory challenges also persist, particularly the multiple entry points and flight frequencies granted to foreign airlines without proportional benefits to local carriers, weakening the competitiveness of Nigeria’s aviation industry.
To maximize the benefits of BASA agreements, Nigeria must strengthen local carriers, reduce operational barriers, and negotiate more favorable terms with its BASA partners. Ensuring that these agreements translate into active, profitable routes will not only boost the aviation industry but also enhance Nigeria’s global and regional air connectivity.
Thanks for reading this edition of Marina and Maitama. It was written by Adijat Kareem and Lucy Okonkwo, and edited by Adijat Kareem.
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