Banks Reduce Oil & Gas Exposure As Credit To Economy Falls By 3%

Deposit Money Banks have reduced their exposure to the oil and gas sector in the third quarter of 2025 as overall credit to the economy declined by three per cent year-on-year, underscoring the lingering impact of tight monetary conditions.

Data from the latest Quarterly Statistical Bulletin released by the Central Bank of Nigeria show that total sectoral credit utilisation fell by 2 per cent quarter-on-quarter and 3 per cent year-on-year to N57.0 trillion in Q3 2025, extending the contraction recorded in the previous two quarters.

Banks’ lending to the oil and gas sector, covering both industries and services, declined by 4.5 per cent quarter on quarter and 9.5 per cent year on year to N16.6 trillion. Although the sector retained its position as the largest recipient of bank credit, its share of total lending eased to 29.1 per cent from 29.6 per cent in the preceding quarter.

Analysts at Quest Merchant Bank attribute the broad moderation in credit growth to the apex bank’s prolonged tight monetary stance aimed at anchoring inflation and stabilising the naira.

Elevated benchmark interest rates have dampened private-sector appetite for borrowing while heightening lenders’ risk considerations.

The analysts also note that the attractiveness of the CBN’s Standing Deposit Facility window, which offers risk-free yields of about 22.5 per cent, curtailed banks’ willingness to extend additional loans, as lenders opt to park excess liquidity with the regulator rather than assume fresh credit risks.

Beyond oil and gas, the finance, insurance, and capital markets segment emerged as the second-largest beneficiary of credit during the quarter. Lending to the segment rose by 18.6 per cent year on year but declined by 5.8 per cent quarter on quarter, accounting for 15.6 per cent of total credit.

The manufacturing sector received N7.1 trillion, representing about 12.4 per cent of total lending. However, credit to the sector contracted by 18.3 per cent year on year, reflecting tighter financial conditions and persistent structural challenges.

Agriculture recorded stronger growth in nominal terms, with credit rising by 0.4 per cent month on month and 38.5 per cent year on year to N3.2 trillion. Despite the expansion, the sector’s share of total bank lending remained modest at 5.6 per cent, highlighting ongoing structural constraints and risk perceptions.

While the Monetary Policy Committee has signalled a less aggressive stance and potential policy easing this year, analysts caution that elevated fiscal deficits, concerns about exchange rate stability, and lingering inflationary pressures will likely necessitate a cautious approach.

They expect some recovery in credit activity as macroeconomic conditions improve and banks leverage stronger capital buffers. However, overall lending growth is projected to remain moderate, with lenders prioritising asset quality and capital preservation amid prevailing uncertainties.