States, local govts’ bank borrowings hit N4tn

As of December 2024, states and local governments collectively owed financial institutions and the Central Bank of Nigeria a total of N4.09 trillion.

Recent figures from the Central Bank’s quarterly statistical bulletin indicate a modest decline of N112 billion, or 2.7%, from the N4.20 trillion recorded at the close of 2023, signaling a slight improvement in the debt situation at the subnational level.

The December 2024 breakdown reveals that commercial and merchant banks hold the largest share of this debt, amounting to N2.41 trillion or 58.9% of the total, down from N2.64 trillion at the end of the previous year—a reduction of N233 billion. Conversely, debt owed to the Central Bank increased from N1.56 trillion in 2023 to N1.68 trillion in 2024, comprising 41.0% of subnational borrowings. This upward shift points to a growing dependence on direct funding from the apex bank by states and local governments.

For the first time, the bulletin also recorded an exposure of N3.77 billion from non-interest banks to subnational entities, with no outstanding claims reported by primary mortgage and microfinance banks.

Examining the trends through 2024, borrowing by states and local governments showed fluctuations. January saw one of the year’s highest borrowing levels, with total claims by Nigerian financial institutions reaching N4.29 trillion—a 20.01% increase over January 2023’s N3.57 trillion. However, claims eased to N4.10 trillion in February and N4.09 trillion in March, before sharply dropping to N3.52 trillion in April. This April figure reflected a 14.07% decrease month-on-month and was the only year-on-year decline recorded that year, falling 5.68%.

Throughout 2024, the bulk of credit to subnational governments came from the Central Bank and commercial and merchant banks. In January, the CBN’s claims stood at N1.56 trillion, or 36.38% of the total, while commercial and merchant banks accounted for N2.73 trillion (63.62%).

This distribution remained consistent for most months, although April showed a shift: the CBN’s share rose to 45.17%, while commercial banks’ exposure fell to 54.71%, coinciding with lower total claims and possibly indicating reduced lending appetite from commercial lenders.

Following the April dip, claims surged in May by 14.74% to N4.04 trillion and reached a peak of N4.29 trillion again in June. Borrowing levels remained relatively stable, holding above N4 trillion from July through December.

Year-on-year comparisons highlighted considerable growth in many months: February recorded a 12.96% rise over February 2023, March was up 11%, and June experienced the largest jump with claims increasing by N1.01 trillion or 30.65% relative to June 2023. By December 2024, total claims stood at N4.09 trillion, slightly down from the N4.20 trillion in December 2023.

The data further shows that non-interest banks’ exposure to subnational entities was minimal, holding steady at N4.03 million until August before dipping marginally to N3.77 million in December.

The increasing share of debt held by the Central Bank reflects a rising reliance on the apex bank’s funding by state governments, especially during periods when commercial banks appeared to limit credit availability.

On the other hand, the decline in commercial banks’ claims—from N2.73 trillion at the start of the year to N2.41 trillion by December—may point to heightened risk aversion or stricter regulatory requirements in the banking industry. The overall modest easing of subnational debt comes amid a challenging economic environment characterized by high inflation and stringent monetary policies enforced by the Central Bank.

(PUNCH)