Nigerian banks cut lending as high interest rates, inflation and stricter regulations force lenders to adopt cautious credit strategies
Nigeria’s largest commercial banks reduced lending activities sharply in the first quarter of 2026 as rising economic uncertainty, elevated interest rates and tighter regulatory conditions forced lenders to adopt a more defensive approach to credit expansion.
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An analysis of the Q1 2026 financial statements of Access Bank, First Holdco, Zenith Bank, Guaranty Trust Holding Company and United Bank for Africa showed that total loans and advances declined by 24.94 per cent year-on-year.
The combined loans granted by the five banks fell to N458.98 billion in Q1 2026 from N611.52 billion recorded in the corresponding period of 2025, underscoring what financial experts described as a cautious and strategic pullback aimed at preserving asset quality.
The steepest decline was recorded by Access Bank, whose loans and advances dropped to N427.82 billion from N582.35 billion in Q1 2025, representing a significant 26.5 per cent decline.
Other lenders posted modest increases in credit expansion. First Holdco’s loans rose to N9.44 billion from N8.97 billion, while Zenith Bank increased lending to N11.38 billion from N10.05 billion.
GTCO’s loans edged slightly higher to N3.17 billion from N3.13 billion, while UBA recorded N7.17 billion compared with N7.02 billion during the same period last year.
Financial analysts said the overall decline reflects increasing caution within the banking sector as institutions grapple with persistent inflationary pressures, high borrowing costs and growing concerns over credit risk exposure.
Experts noted that many banks are becoming more selective in extending loans, particularly to sectors vulnerable to exchange-rate volatility and weak consumer demand.
Nigeria’s high interest-rate environment has continued to weigh heavily on credit creation following aggressive monetary tightening measures introduced to curb inflation.
The elevated cost of borrowing has forced many businesses to scale back expansion plans, while small and medium-sized enterprises are finding it increasingly difficult to access affordable financing.
Analysts warned that the prolonged weakness in bank lending could have powerful implications for economic growth, particularly for sectors heavily dependent on credit financing, including manufacturing, agriculture, trade and construction.
The slowdown in lending is expected to feature prominently at the next Monetary Policy Committee meeting of the Central Bank of Nigeria as policymakers attempt to balance inflation control with the need to stimulate economic activity.
Co-founder of Comercio Partners, Nnamdi Nwizu, said the prevailing environment was forcing banks to prioritise balance-sheet protection over aggressive loan growth.
“With interest rates still elevated and businesses facing rising operating costs, lenders are naturally tightening their risk appetite,” Nwizu said.
Head of Research at FSL Securities, Victor Chiazor, urged regulators to strike a balance between maintaining financial system stability and encouraging lending to productive sectors.
Victor Chiazor also called for reduced regulatory pressures around capital and liquidity requirements to provide banks with greater flexibility in supporting businesses and economic growth.
“There is a need for targeted policy support that encourages banks to lend without compromising financial stability.
Credit guarantee schemes, lower regulatory burdens on priority-sector lending and improved macroeconomic stability would help restore confidence in the lending environment,” Chiazor explained.
Despite the lending slowdown, analysts said the cautious strategy may help banks avoid a deterioration in asset quality and rising non-performing loans amid lingering foreign exchange uncertainties and fragile consumer purchasing power.
Also read: Nigerian banks seek non-interest revenue amid FX slowdown
For now, Nigeria’s largest lenders appear focused on protecting their balance sheets as they navigate a challenging economic environment shaped by inflationary pressures, exchange-rate instability and cautious investor sentiment.
Victory Emmanuel is a journalist and contributor to Freelanews.com, covering news, business, and public affairs.
