Nigeria’s states cut bank debt by US$360m as revenues rise

Nigeria’s state governments and local councils reduced their bank borrowings by about 547.5 billion naira (US$360 million) over the past year, according to central bank data, as higher federation revenues eased fiscal pressure on sub-national authorities.

Figures from the Central Bank of Nigeria’s latest Quarterly Statistical Bulletin show that banks’ claims on state and local governments fell to 2.13 trillion naira (US$1.40 billion) in June 2025, down from 2.68 trillion naira (US$1.76 billion) a year earlier. The decline represents a 20.4 percent reduction in outstanding loans to the sub-national tier of government.

The data indicate a steady deleveraging trend through the year. Banks’ exposure to states and councils stood at 2.73 trillion naira (US$1.80 billion) in January 2024 but dropped to 2.44 trillion naira (US$1.61 billion) by January 2025, suggesting that roughly 292 billion naira (US$190 million) in debts were repaid during that period.

Borrowings rose briefly in early 2025, climbing to 2.59 trillion naira (US$1.68 billion) in February before easing to 2.55 trillion naira (US$1.60 million) in March. Loan exposure then stabilized at around 2.44–2.45 trillion naira (US$1.61 billion–US$1.62 billion) in April and May, before a sharp fall in June to 2.13 trillion naira (US$1.40 billion), the largest single-month adjustment recorded during the year.

Month-on-month, the decline between May and June alone amounted to about 313 billion naira (US$1.70 billion), reflecting what analysts described as an accelerated effort by states to cut costly bank debt amid elevated interest rates.

The reduction in borrowing coincides with a surge in inflows from the Federation Account Allocation Committee (FAAC), which distributes oil and non-oil revenues among the federal, state, and local governments. Higher allocations in recent months have been driven by improved oil receipts, foreign-exchange reforms, and changes in revenue remittances from state-owned enterprises.

Bank loans have historically been used by Nigerian states to bridge budget shortfalls, fund infrastructure projects, and manage cash-flow gaps caused by delayed federal transfers. However, rising borrowing costs following monetary tightening by the central bank have made commercial bank financing increasingly expensive.

The latest figures suggest that improved liquidity from federal allocations has enabled many states and councils to scale back reliance on short-term bank credit, potentially easing pressure on their finances and on the domestic banking system.

Economists say the trend could improve fiscal sustainability at the sub-national level, though they caution that long-term stability will depend on continued revenue growth and tighter spending discipline.