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States and LGs cut bank debts by ₦547.5bn in one year amid rising FAAC inflows
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CBN data show lenders’ exposure fell from ₦2.68tn to ₦2.13tn year-on-year
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High interest rates and stronger revenues drove aggressive debt repayments
State governments and local government councils reduced their outstanding bank loans by about ₦547.5bn within one year, buoyed by higher inflows from the Federation Account Allocation Committee (FAAC).
Data from the Central Bank of Nigeria’s (CBN) latest Quarterly Statistical Bulletin indicate that banks’ claims on states and local governments declined from ₦2.68tn in June 2024 to ₦2.13tn in June 2025, representing a 20.4 per cent year-on-year reduction.
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Further analysis shows that total bank exposure stood at ₦2.73tn in January 2024 but fell to ₦2.44tn by January 2025, translating to about ₦292bn in repayments. Although liabilities rose slightly to ₦2.59tn in February 2025, they eased to ₦2.55tn in March and stabilised around ₦2.44tn–₦2.45tn in April and May before dropping sharply to ₦2.13tn in June—the steepest monthly decline recorded during the period.
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The month-on-month fall of about ₦313bn between May and June 2025 signals a deliberate push by sub-national governments to cut bank exposure amid elevated borrowing costs and improved revenue flows.
Throughout 2024, the CBN’s Monetary Policy Committee raised the Monetary Policy Rate from 18.75 per cent to about 27.50 per cent to curb inflation and stabilise the naira. While rates were largely held in 2025, the high-interest environment encouraged states and councils to deleverage.
FAAC records show a significant revenue surge in 2025. States and local governments jointly received ₦12.67tn, up from ₦8.96tn in 2024, excluding derivation funds—an increase of ₦3.71tn or 41.4 per cent. Including the 13 per cent derivation, total receipts rose to ₦14.28tn in 2025 from ₦10.31tn the previous year.
State allocations climbed by ₦2.13tn to ₦7.31tn, while local government receipts increased by ₦1.58tn to ₦5.35tn. Monthly distributions in 2025 consistently outpaced 2024 levels, underscoring stronger fiscal capacity.
The Nigeria Extractive Industries Transparency Initiative (NEITI) noted that rising revenues have eased debt pressures, though concerns remain for states with high debt ratios and weaker allocation profiles.
Meanwhile, the Director-General of the Debt Management Office, Patience Oniha, urged states to prioritise tax revenue generation and adopt Public-Private Partnerships rather than rely heavily on borrowing to finance infrastructure.
