…As Credit to private sector declines to N73.66trn in February – CBN
By Dickson Pat
Nigeria’s money supply contracted for the first time in 2025, dropping to N110.32 trillion in February from N110.94 trillion in January.
The 0.56% decline comes amid continued liquidity management by the Central Bank of Nigeria ,CBN, following earlier signs of monetary tightening and exchange rate adjustments.
The figure, however, still reflects a significant 15.45% increase year-on-year compared to the N95.56 trillion recorded in February 2024.
This indicates that despite the recent slowdown, Nigeria’s monetary base has expanded considerably over the past 12 months.
M3, which includes both net foreign assets ,NFA, and net domestic assets ,NDA, provides a holistic picture of Nigeria’s monetary dynamics. The movement in February reflects changes in both foreign reserves and domestic credit flows.
A closer look at the components of M3 shows that net foreign assets fell sharply by 8.62% in February to N32.34 trillion, down from N35.39 trillion in January.
This decline of over N3 trillion is likely a reflection of reduced external reserves or increased FX interventions by the CBN aimed at stabilising the naira.
On the other hand, net domestic assets rose to N77.97 trillion in February from N75.55 trillion in January, representing a 3.21% increase month-on-month. This suggests sustained credit expansion within the domestic economy, particularly from government and private sector lending.
However, compared to February 2024, net foreign assets rose significantly from just N7.41 trillion a jump of over 337%. This highlights the impact of exchange rate liberalisation and increased foreign inflows over the past year.
Meanwhile, net domestic assets declined slightly from N88.15 trillion recorded in the same period last year, pointing to a possible shift in asset composition driven by evolving monetary policy.
Broad money supply, excluding certain large time deposits and institutional instruments, known as M2, also recorded a marginal decline in February. The figure dropped to N110.31 trillion from N110.93 trillion in January, mirroring the same 0.56% contraction seen in M3.
Despite the short-term drop, M2 is still up 17.39% compared to February 2024, when it stood at N93.97 trillion. This highlights a broader monetary expansion over the past year, consistent with government spending and accommodative fiscal conditions witnessed in the second half of 2024.
Narrow money ,M1, which includes currency in circulation and demand deposits, recorded a 2.18% increase in February, rising to N37.57 trillion from N36.77 trillion in January.
This points to increased liquidity in the hands of households and businesses, possibly linked to higher transactional demand and ongoing fiscal disbursements.
Compared to the same period in 2024, when M1 was N30.28 trillion, narrow money grew by 24.07%.
The significant year-on-year growth suggests higher reliance on cash-based transactions and short-term banking instruments amid inflationary pressures and currency volatility.
The February data reflects a shift in Nigeria’s liquidity structure, as the fall in net foreign assets dragged down the overall money supply, despite a rise in domestic credit and demand deposits.
The sharp rise in foreign assets over the past year is now beginning to taper, potentially reflecting stabilisation in forex inflows or the impact of CBN’s interventions in the official FX market.
With inflation still elevated and the naira seeing some stability following recent reforms, the moderation in M3 could offer a temporary breather for monetary authorities.
It may also influence the tone of the upcoming Monetary Policy Committee ,MPC, meeting as the CBN continues to balance its inflation-targeting mandate with the need to support growth.
Meanwhile, Total credit to the private sector in Nigeria declined to N73.66 trillion in February 2025, marking a consecutive monthly drop in lending to businesses and individuals. This is according to data released by the Central Bank of Nigeria ,CBN.
The latest figures from the apex bank show a downward trend in credit extension, with private sector loans decreasing from N74.92 trillion in January 2025 and N75.96 trillion in December 2024.
The data indicates a significant year-on-year contraction, with private sector credit falling by approximately N7.2 trillion ,8.9%, compared to February 2024.
This represents a cumulative decline of approximately N2.3 trillion, showing that there has been a steady decline over the past three months:
February 2025: N73.66 trillion, January 2025: N74.92 trillion, December 2024: N75.96 trillion, February 2024: N80.86 trillion
This moderation in credit seems to align with the CBN’s ongoing stringent monetary policies under Governor Yemi Cardoso, aimed at curbing inflation and stabilizing the economy.
Some analysts attribute the reduction in credit to a combination of factors, including tighter monetary policies by the CBN aimed at controlling inflation, increased interest rates, and cautious lending by commercial banks due to rising default risks.
Additionally, uncertainty in the business environment, foreign exchange volatility, and sluggish economic growth have further dampened private sector borrowing.
The decline in private sector credit could have significant implications for economic growth, as reduced access to funding may constrain business expansion, job creation, and investment in key sectors such as manufacturing, agriculture, and technology.
Small and medium-sized enterprises ,SMEs, which rely heavily on bank loans for working capital, could be particularly affected.
According to Bolaji Ojo, a financial expert based in Lagos, “prolonged credit contraction may slow down economic activities and undermine efforts to stimulate growth and investment.
“The private sector remains a critical driver of economic development, and sustained credit support is essential for fostering innovation, improving productivity, and enhancing competitiveness”, he noted.
Observers say the CBN has maintained a hawkish stance on monetary policy to stabilize the economy, with high interest rates aimed at curbing inflation and supporting the naira.
However, with lending to the private sector declining, stakeholders may call for a balanced approach that promotes financial stability while ensuring adequate credit flows to businesses.
Market analysts anticipate that the CBN may review its policies to strike a balance between inflation control and economic growth, particularly if credit contraction continues to affect business operations and investor confidence.
