NIGERIA Law and Practice Contributed by: Ben Unaegbunam, Omolola Coker, Sanford Mba, Promise Osimhen, Chidera Chikere and Oluwaseun Denagan, Dentons ACAS-Law (Adepetun, Caxton-Martins, Agbor & Segun)
1. Loan Market Overview 1.1 The Regulatory Environment and Economic Background
and grain supply chains. Although Nigeria is an oil exporter, it remains heavily reliant on imported refined petroleum products and key food commodities. The resulting surge in international prices has fed directly into higher domestic inflation and further exchange- rate volatility. Additionally, the conflict in the Middle East, particular- ly the Israeli–Palestinian escalation, has fuelled global uncertainty and volatility in crude-oil prices – Nigeria’s principal source of foreign exchange – creating plan- ning challenges for fiscal authorities and adding pres- sure to the external account. Heightened global risk aversion has reduced inter- national lenders’ appetite for Nigerian risk. Nigerian banks and corporations therefore face higher external funding costs, prompting a stronger reliance on local- currency borrowing and more conservative credit underwriting locally. Recognising the strain on these critical sectors, the CBN has renewed and expanded targeted intervention programmes, particularly for agriculture, manufacturing, and small and medium- sized enterprises, to moderate the impact of high bor- rowing costs and to sustain employment and output. 1.3 The High-Yield Market The Nigerian loan market has witnessed growing high-yield lending, particularly amid rising interest rates, tighter monetary policy, and constrained bank liquidity. While traditional lending has focused on investment-grade borrowers, high-yield facilities now provide critical access to capital for non-investment- grade corporates, influencing loan terms, structures, and risk allocation. CBN Prudential Guidelines mandate prudent credit assessment, capital adequacy, and liquidity manage- ment for higher-risk lending, ensuring systemic sta- bility. Securities and Exchange Commission (SEC) Rules on Private Debt Issuance require disclosure and registration where structured or securitised loans are offered, promoting transparency and enforceability. Impact on Loan Terms and Structures High-yield loans attract elevated interest rates reflect- ing credit risk, often coupled with shorter tenors, strict- er covenants, and enhanced reporting obligations.
Nigeria’s loan market over the last five years has been shaped by a confluence of macroeconomic volatility and an increasingly assertive regulatory environment. The removal of fuel subsidies, liberalisation of the foreign-exchange regime, and persistent inflationary pressures since mid-2023 have driven the Central Bank of Nigeria (CBN) to adopt a markedly contrac- tionary stance. The Monetary Policy Rate has been raised to historically high levels (currently 27.5% in 2025), accompanied by a 50% Cash Reserve Ratio and tighter liquidity-management operations. These measures, aimed at stabilising prices and the naira, have materially increased funding costs and height- ened lenders’ perception of credit risk. Banks have consequently shortened loan tenors, repriced facilities upward, and increased collateral requirements, while many corporates face significantly higher borrowing costs than in the pre-2023 period. These economic and regulatory dynamics have col- lectively steered the loan market toward caution and selectivity. Deposit-money banks have increased allo- cations to high-yield sovereign securities, constrain- ing growth in private-sector credit. In summary, credit growth is likely to remain measured until inflationary pressures recede and monetary policy eases. Should foreign-exchange stability persist and banks complete recapitalisation programmes, a gradual recovery in private-sector lending may emerge, albeit with con- tinued emphasis on risk-based pricing and rigorous supervisory oversight. 1.2 Impact of Global Conflicts The Nigerian loan market has experienced significant fluctuations and recurrent economic shocks, driven in part by the indirect impact of ongoing global con- flicts and uncertainty. These factors have sustained pressure on the naira and elevated domestic inflation, compelling the market to adapt in order to preserve financial stability and support economic activity. The Russia–Ukraine war has amplified Nigeria’s mac- roeconomic challenges by disrupting global energy
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