…banks’ exposure to states and councils declined from N2.73 trillion in January 2024 to N2.44 trillion in January 2025,
ABUJA, NIGERIA- The iNews Times | States and Local Government councils in Nigeria reduced their bank borrowings by about N547.52 billion within one year, buoyed by a surge in Federation Account inflows, according to findings by iNews Times.
Data from the Central Bank of Nigeria’s (CBN) latest Quarterly Statistical Bulletin show that the banking sector’s “claims on state and local governments” fell from N2.68 trillion in June 2024 to N2.13 trillion in June 2025, reflecting a 20.4 percent year-on-year reduction in subnational government indebtedness to commercial and merchant banks.
Further analysis revealed that banks’ exposure to states and councils declined from N2.73 trillion in January 2024 to N2.44 trillion in January 2025, a drop of about N292 billion. Although the balance ticked up slightly to N2.59 trillion in February 2025 and eased to N2.55 trillion in March, it steadied around N2.44–2.45 trillion in April and May, before a sharp drop to N2.13 trillion in June, the largest single-month adjustment during the year. Month-on-month, this represented a N313 billion reduction from May to June 2025, signalling an aggressive effort to reduce bank obligations amid rising FAAC allocations and high interest rates.
The CBN’s Monetary Policy Committee (MPC) had raised the Monetary Policy Rate (MPR) from 18.75 percent at the start of 2024 to 27.50 percent by November through multiple hikes aimed at controlling inflation and stabilising the exchange rate. In 2025, rates were largely held at 27.50 percent, before a slight reduction to 27.00 percent in September, the first cut in five years, reflecting moderated inflation and a gradual shift to supporting broader economic activity. By November 2025, the MPR remained at 27.00 percent.
High borrowing costs, combined with rising FAAC disbursements, likely encouraged subnational governments to reduce reliance on bank loans. FAAC records indicate that states and councils jointly received N12.67 trillion in 2025, up from N8.96 trillion in 2024, a 41.4 percent increase. Including the 13 percent derivation fund for oil-producing states, total allocations rose from N10.31 trillion in 2024 to N14.28 trillion in 2025, a 38.6 percent increase. The derivation fund alone increased from N1.35 trillion to N1.62 trillion.
States were the biggest beneficiaries, with allocations rising from N5.19 trillion in 2024 to N7.31 trillion in 2025, while local government councils saw their share increase from N3.77 trillion to N5.35 trillion, a 41.8 percent jump. Month-on-month, states received between N498 billion and N727 billion in 2025, while councils received between N361 billion and N529 billion, consistently higher than 2024 figures. Overall, total FAAC allocations to all three tiers of government rose from N13.91 trillion in 2024 to N20.28 trillion in 2025, with distributable revenue, including derivation, climbing from N15.26 trillion to N21.89 trillion.
The financial windfall appears to have contributed to the decline in bank borrowings by states and councils. The Nigeria Extractive Industries Transparency Initiative (NEITI) noted that states with high debt burdens often receive lower FAAC allocations, raising concerns about fiscal sustainability. The report highlighted that several high-debt states ranked lower in allocations but higher for debt deductions, signalling potential stress in debt-to-revenue ratios.
The Director-General of the Debt Management Office, Ms Patience Oniha, recently advised state governments to prioritise revenue generation and Public-Private Partnerships (PPPs) over borrowing to fund infrastructure. Speaking at a workshop in Lagos under the States Action on Business Enabling Reforms Programme with World Bank support, Oniha said, “Borrowing should not be the major way to source funds. You must increase your revenues through improved tax collection. Public-private partnerships can attract private sector investment, accelerate project delivery, improve quality, create jobs, stimulate local businesses, and foster innovation.”
