States, LGs slash bank debts by N547.5bn as revenues surge

States and Local Government councils cut their outstanding bank loans by about N547.5bn in one year, helped by stronger inflows from the Federation Account, new data show.

Figures from the Central Bank of Nigeria’s latest Quarterly Statistical Bulletin reveal that banks’ total “claims on state and local governments” fell from N2.68tn in June 2024 to N2.13tn in June 2025 — a drop of 20.4 per cent.

The decline followed months of gradual adjustments. Banks’ exposure stood at N2.73tn in January 2024 but fell to N2.44tn by January 2025. Although the figure fluctuated slightly in early 2025, it dropped sharply in June — the biggest single-month reduction of the year.

Analysts link the trend to two factors: high interest rates and rising Federation Accounts Allocation Committee disbursements. With the Central Bank tightening monetary policy through 2024, borrowing became more expensive. The CBN later paused and made a small rate cut in late 2025 as inflation started easing.

At the same time, FAAC distributions surged. States and councils jointly received N12.67tn in 2025, up from N8.96tn the previous year. Including the 13 per cent derivation fund, total receipts rose to N14.28tn, compared with N10.31tn in 2024.

State governments’ share climbed from N5.19tn to N7.31tn, while local councils’ allocations increased from N3.77tn to N5.35tn. Monthly figures showed higher payments throughout 2025 compared with 2024.

The Nigeria Extractive Industries Transparency Initiative recently warned, however, that several heavily indebted states remain under fiscal pressure despite higher revenues, raising concerns over sustainability.

Debt Management Office Director-General, Patience Oniha, urged states to rely less on borrowing and embrace public-private partnerships and stronger tax collection to finance infrastructure and services.