Nigeria’s financial system witnessed major shifts in August 2025, with broad money (M3) expanding strongly even as government borrowing dropped sharply by 25.74% year-on-year, according to new data from the Central Bank of Nigeria (CBN).
Broad Money Jumps to N119.52 Trillion
M3 rose to N119.52 trillion, driven largely by stronger quasi-money balances and increased foreign assets. The growth signals rising liquidity in the system despite tight monetary conditions.
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Quasi-money surged to N80.21 trillion, showing households and firms are moving funds into interest-bearing deposits.
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Narrow money (M1), made up of cash in circulation and demand deposits, stood at N39.30 trillion. The relatively smaller size suggests Nigerians prefer keeping funds in banks rather than in physical currency.
Government Borrowing Contracts Sharply
Credit to government fell to N23.13 trillion, reflecting a steep 25.74% decline YoY. This shows less liquidity is being channeled toward deficit financing.
Meanwhile, credit to the private sector stayed modest at N75.83 trillion, indicating that rising liquidity is not fully translating into stronger lending to businesses or economic investment.
Economic Consequences of the Shift
The divergence between liquidity expansion and weaker government borrowing comes with mixed effects:
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Private sector credit remains weak – despite high liquidity, banks are cautious, limiting business loans and job-creating investments.
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Households shift to safer assets – more deposits are held in interest-bearing accounts rather than being spent, reducing consumption-driven growth.
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Reduced fiscal push – lower borrowing implies fewer government projects, slowing public-sector-led growth.
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Liquidity from abroad – net foreign assets rose to N40.94 trillion, but external inflows do not always feed into domestic credit for productive sectors.
Money and Credit Dynamics
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Net domestic assets stood at N78.58 trillion.
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Net domestic credit totaled N98.97 trillion, with the drop in government credit offset by private-sector balances.
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Currency outside banks fell slightly by 0.92% to N4.45 trillion, though still 15.12% higher YoY.
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Base money reached N35.68 trillion, dominated by bank reserves (N30.76 trillion) over physical cash.
This pattern shows liquidity growth is concentrated in bank balances, consistent with the CBN’s push toward a cash-lite economy.
CBN Policy Adjustments
At its September 2025 MPC meeting, the CBN fine-tuned its tools:
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Reduced the Cash Reserve Ratio (CRR) for commercial banks from 50% to 45%.
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Introduced a 75% CRR on non-TSA public sector deposits to sterilize idle government funds.
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Adjusted the Standing Facilities corridor to +250/-250 basis points around the MPR, making overnight liquidity management more predictable.
Meanwhile, CBN bills issuance dropped by 14.01% in two months and 13.33% YoY to N9.29 billion, reflecting a cautious approach to liquidity sterilization. Special intervention reserves stayed at N284.36 billion, maintaining support for agriculture and small businesses.
Why It Matters
Nigeria’s money supply is expanding, but the contraction in government borrowing and modest private credit mean liquidity growth is not driving broad economic expansion. Businesses still face limited access to loans, household spending remains subdued, and public projects may slow.
In short, Nigeria’s financial system is becoming more liquid on paper, but unless funds flow into productive sectors, the broader economy will feel little impact.
