Booming Banks, A Struggling Nation (2) – Independent Newspaper Nigeria

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The banking industry reveals the challenge of connecting the two. Banks are expected to intermediate between savings and investment, directing funds towards businesses and individuals capable of using capital productively. Yet the IMF’s 2026 assessment found that, despite private-sector credit growing by about 20 percent in 2025 after adjusting for exchange-rate valuation effects, credit remained equivalent to only 12 per cent of GDP. The Fund also noted that domestic savings were not being sufficiently channeled into productive investment and that lending remained concentrated in a few sectors.

That finding raises an important question about the role of financial deepening in Nigeria’s development. And this is a clear, stark contradiction because a banking system may be profitable and well capitalised, but if credit remains inaccessible to a broad range of productive enterprises, its contribution to economic transformation will be constrained.

In many situations that have played out in the past, consider the manufacturer seeking financing to purchase machinery, the farmer requiring working capital before harvest, the food processor trying to expand capacity, the technology entrepreneur developing a locally relevant solution, or the small business owner hoping to employ additional workers. Each represents a potential source of production, income and employment. Each also faces the practical question of whether financing is available at a cost and on terms the business can sustain.

When viable enterprises cannot obtain suitable financing, investment is delayed, expansion is limited and employment opportunities are lost. The consequence is not simply a missed lending opportunity for a bank. Beyond what is mentioned, it becomes a clear case of a missed opportunity for the economy to increase output, deepen local supply chains and broaden the sources of household income.

One truth is that it does not mean banks should lend recklessly or abandon prudent risk management. Financial stability is essential to economic development. A banking system weakened by bad loans cannot provide sustainable credit. The challenge is to create conditions in which responsible lending to productive businesses becomes commercially viable.

That requires more than exhortations to banks. Banks need a stable economy, dependable institutions and a supportive business environment before they can confidently expand lending to productive businesses. The fact is that where electricity is unreliable, transport costs are high, security is uncertain and policy changes are difficult to anticipate, the risks and costs of doing business rise. With these developments, banks also respond to those risks through lending decisions, pricing and collateral requirements.

Consequently, the quality of the business environment influences the reach of bank credit. It is a clear fact that when the economy is weak, banks often prefer lending to large, established businesses rather…