Nigeria’s banking sector extends credit to the private sector equivalent to just 9.4 per cent of the country’s Gross Domestic Product, underscoring the limited role of financial institutions in supporting business expansion despite ongoing reforms aimed at deepening financial inclusion and stimulating economic growth.

This was disclosed in the African Development Bank’s 2026 African Economic Outlook report, which identified shallow financial markets as a major constraint to mobilising development finance in Africa’s largest economy.

The report stated that Nigeria continues to grapple with significant financing challenges, as domestic revenue mobilisation remains weak, the informal sector remains large, and the financial system lacks the depth required to channel sufficient capital into productive sectors of the economy.

According to the AfDB, Nigeria’s private sector credit-to-GDP ratio of 9.4 per cent is significantly below levels seen in many emerging and developing economies, reflecting limited access by businesses to formal financing channels.

The bank noted that Africa as a whole continues to lag behind other regions in private sector lending, with domestic credit constrained by weak savings mobilisation, underdeveloped financial markets, and regulatory bottlenecks.

The report read, “Most of Africa’s bank lending is concentrated in short-term and lowrisk asset classes, and little in long-term projects with high development impacts. At 34.6% of GDP in 2020–2024, Africa’s domestic credit to the private sector is the lowest globally, having declined in the last 10 years.

“South Asia and Latin American and the Caribbean have credit to the private sector of more than 50% of GDP. Major African economies such as Kenya (31.6%), Egypt (28.3%), Côte d’Ivoire (21.4%), and Nigeria (9.4%) remain well below comparable emerging lowermiddle-income market economies such as Vietnam (121.6%), Malaysia (121.5%), and Chile (111.8%).”

The report explained that weak collateral enforcement systems, lengthy judicial processes, and stringent prudential regulations continue to raise perceived lending risks, leading financial institutions to ration credit and prioritise lower-risk borrowers.

It further noted that banks across Africa remain major holders of government securities, a trend that reduces the volume of funds available for lending to businesses and productive sectors of the economy.

Beyond bank lending, the AfDB said Nigeria’s broader financial system remains underdeveloped.

According to the report, stock market capitalisation averaged just 11.8 per cent of GDP between 2020 and 2024, placing Nigeria among countries with the lowest market capitalisation ratios on the continent.

The bank added that structural constraints, including high cross-border payment costs and limited market depth, continue to discourage productive capital inflows and long-term investment.

“Currently, the financial system remains shallow,” the report stated, warning that although external financing inflows are rising, they remain insufficient to meet Nigeria’s development financing needs.

The AfDB also highlighted insecurity and other domestic challenges as factors weakening investor confidence and limiting Nigeria’s ability to attract larger volumes of private capital.

To address the financing gap, the AfDB urged Nigeria to deepen its domestic financial markets and expand the use of alternative funding mechanisms.

The report recommended increased adoption of green bonds, public-private partnerships, blended finance structures, and debt-for-development swaps to diversify financing sources and reduce dependence on traditional bank lending.

It also called for stronger collaboration with development finance institutions to improve domestic revenue mobilisation and enhance the efficiency of resource allocation.

According to the bank, strengthening financial markets and improving capital mobilisation systems will be critical to financing infrastructure development, supporting businesses, and sustaining long-term economic growth.

The report noted that Africa’s fragmented and shallow financial systems continue to hinder the mobilisation of domestic savings and their allocation to productive investments.

Recall that Nigeria’s private sector credit declined sharply by over N14 trillion within two months, falling to N80.59 trillion in April 2026 from a 12-month high of N94.61 trillion recorded in February 2026, despite the Central Bank of Nigeria’s earlier decision to ease monetary policy.

The figures underscore continued weaknesses in lending to productive sectors of the economy, even as monetary authorities attempt to balance inflation control with growth support through cautious policy adjustments.