Nigeria’s financial system is providing one of the lowest levels of credit support to its private sector among peer emerging economies. New data from the African Development Bank (AfDB) 2026 African Economic Outlook shows that bank lending to Nigeria’s private sector stands at just 9.4 per cent of Gross Domestic Product (GDP), a level the institution described as indicative of a “shallow financial system” that is struggling to effectively mobilise and allocate capital to productive sectors.
The report places Nigeria significantly below comparable emerging economies, including Vietnam, Malaysia and Chile, where private sector credit exceeds 100 per cent of GDP in some cases. It also trails other African peers such as Kenya, Egypt and Côte d’Ivoire, reflecting structural weaknesses in domestic financial intermediation.
The AfDB warned that despite Nigeria’s status as Africa’s largest economy, its financial sector remains constrained by limited depth, weak savings mobilisation and a large informal economy that continues to operate outside formal credit systems.
According to the report, these conditions have created a persistent financing gap that limits the ability of businesses to expand operations, invest in productive assets and scale across value chains.
A key concern highlighted by the bank is the risk-averse structure of lending across the continent, with Nigerian banks, like many of their regional counterparts, concentrating portfolios in short-term, low-risk assets rather than long-term productive investments.
This trend, the AfDB noted, is partly driven by weak collateral enforcement mechanisms, lengthy judicial processes and stringent prudential requirements, all of which increase perceived lending risk and encourage financial institutions to ration credit.
As a result, access to long-term financing for manufacturers, infrastructure developers and small and medium-sized enterprises remains limited, constraining broader economic expansion.
The report also pointed to the growing preference among banks for government securities, a shift that continues to crowd out private sector lending and reduce the availability of credit for businesses.
Beyond banking intermediation, Nigeria’s capital markets also reflect limited financial depth. The AfDB revealed that stock market capitalisation averaged just 11.8 per cent of GDP between 2020 and 2024, placing the country among the lowest in Africa in terms of equity market development.
The bank said the combination of shallow banking systems and underdeveloped capital markets has created structural bottlenecks that restrict long-term investment flows and weaken the economy’s capacity to mobilise domestic savings.
“Currently, the financial system remains shallow,” the report stated, adding that although external financing inflows are increasing, they remain insufficient to meet Nigeria’s substantial development financing requirements.
The AfDB further identified additional constraints, including high cross-border transaction costs, limited market liquidity and insecurity, all of which continue to undermine investor confidence and deter long-term capital inflows.
Together, these factors contribute to a financing environment that is heavily reliant on short-term bank lending, with limited support for infrastructure development, industrial expansion and innovation-driven sectors.
To address these challenges, the AfDB is calling for a shift in Nigeria’s financing architecture, urging policymakers to deepen domestic financial markets and expand the use of alternative funding instruments.
Among its key recommendations are increased adoption of green bonds, public-private partnerships, blended finance structures and debt-for-development swaps as mechanisms to diversify funding sources and reduce dependence on traditional bank credit.
The bank also stressed the need for stronger collaboration with development finance institutions to improve domestic revenue mobilisation and enhance the efficiency of capital allocation.
According to the AfDB, strengthening financial market infrastructure will be critical not only for closing Nigeria’s credit gap but also for unlocking private sector-led growth and improving economic resilience.
