States and Local Government councils reduced their bank borrowings by about ₦547.52 billion in one year, as Federation Account inflows surge, according to findings.
Figures from the Central Bank of Nigeria’s latest Quarterly Statistical Bulletin reveal that the banking sector’s “claims on state and Local Governments” fell from ₦2.68 trillion in June 2024 to ₦2.13 trillion in June 2025.
This means sub-national governments collectively cut their indebtedness to commercial and merchant banks by 20.4 per cent year-on-year.
Further analysis shows that in January 2024, banks’ exposure to states and councils stood at ₦2.73 trillion. One year later, in January 2025, the figure had dropped to ₦2.44 trillion, indicating that about ₦292 billion was cleared during that period.
The outstanding balance then ticked up slightly in February 2025 to ₦2.59 trillion and eased again to ₦2.55 trillion in March 2025. By April and May 2025, exposure steadied around ₦2.44 trillion–₦2.45 trillion, before a sharp decline to ₦2.13 trillion in June 2025, representing the largest single-month adjustment during the year.
Year-on-year, June provided the clearest shift. The banks were owed ₦2.68 trillion in June 2024, but the balance had fallen by more than half a trillion naira a year later.
Month-on-month, the drop from May 2025’s ₦2.45 trillion to June 2025’s ₦2.13 trillion amounted to about ₦313 billion, signalling an aggressive push to unwind bank obligations at the end of the second quarter amid high interest rates and rising FAAC allocations.
It was observed that throughout 2024, the Central Bank of Nigeria’s Monetary Policy Committee aggressively tightened policy, lifting the Monetary Policy Rate from 18.75 per cent at the start of the year to about 27.50 per cent by November, through multiple successive hikes to rein in inflation and stabilise the exchange rate.
In 2025, the MPC largely held rates steady at 27.50 per cent for much of the year, signalling a cautious pause after the earlier tightening cycle as inflation began to moderate. However, in September 2025, the committee delivered its first rate cut in five years, trimming the MPR to 27.00 per cent, reflecting slowing price pressures and a gradual shift toward supporting broader economic activity.
By November 2025, the CBN reaffirmed the 27.00 per cent benchmark, balancing the need to sustain disinflation with financial stability concerns as borrowing costs remained high but gradually more accommodative.
The high interest rate likely pushed sub-nationals to reduce borrowing as FAAC allocations rose. Further analysis of FAAC records shows a jump in what state governments and local government councils jointly received in 2025 compared with 2024, reflecting the scale of the revenue windfall now flowing through the federation account.
Data from the Office of the Accountant-General of the Federation show that states and local governments jointly received ₦12.67 trillion in 2025, up from ₦8.96 trillion in 2024. These figures exclude the 13 per cent derivation fund for oil-producing states. The difference of ₦3.71 trillion represents a 41.4 per cent surge in year-on-year statutory inflows to the two tiers of government.
When the 13 per cent derivation fund is added, the gap remains just as stark. States and councils together received ₦14.28 trillion in 2025, compared with ₦10.31 trillion in 2024, meaning an extra ₦3.98 trillion, or about 38.6 per cent more than the previous year.
The PUNCH
