Banking sector’s claims on State, LGs drop to N2.13trn in H1 2025

The Central Bank of Nigeria (CBN) has revealed that the banking sector’s “claims on state and Local Governments” fell from N2.68trillion in June 2024 to N2.13trillion in June 2025.

Figures from the latest CBN’s  Quarterly Statistical Bulletin also disclosed that States and Local Government councils reduced their bank borrowings by about N547.52billion in one year, as Federation Account inflows increase significantly.

This means sub-national governments collectively cut their indebtedness to commercial and merchant banks by 20.4 per cent year-on-year.

The report stated that in January 2024, banks’ exposure to states and councils stood at N2.73trillion. 

According to the report, in January 2025, the figure had dropped to N2.44trillion, indicating that about N292 billion was cleared during that period.

The outstanding balance then ticked up slightly in February 2025 to N2.59trillion and eased again to N2.55trillion in March 2025. By April and May 2025, exposure steadied around N2.44trillion–N2.45trillion, before a sharp decline to N2.13trillion in June 2025, representing the largest single-month adjustment during the year.

Year-on-year, June provided the clearest shift. The banks were owed N2.68trillion 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 N2.45trillion to June 2025’s N2.13trillion amounted to about N313billion, signalling an aggressive push to unwind bank obligations at the end of the second quarter amid high interest rates and rising FAAC allocations.

The high interest rate likely pushed sub-nationals to reduce borrowing as FAAC allocations rise. 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 N12.67trillion in 2025, up from N8.96trillion in 2024. These figures exclude the 13 per cent derivation fund for oil-producing states. The difference of N3.71trillion 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 N14.28trillion in 2025, compared with N10.31trillion in 2024, meaning an extra N3.98trillion, or about 38.6 per cent more than the previous year.

The derivation component alone rose from N1.35trillion in 2024 to N1.62trillion in 2025. A closer look at the breakdown shows that states were the biggest beneficiaries in absolute terms.

State governments’ FAAC share rose from N5.19trillion in 2024 to N7.31trillion in 2025, an increase of N2.13trillion, equivalent to a 41 per cent rise year-on-year. Local government councils followed the same pattern, with allocations rising from N3.77trillion in 2024 to N5.35trillioon in 2025 — a jump of N1.58trillion, or 41.8 per cent.

The trend was visible month after month. In January 2024, states received N396.69billion, but by January 2025, this had risen to N498.50 billion. The figures continued to climb through the year, peaking at N727.17billion for states in October 2025, before closing the year at N601.73billion in December 2025, still well above the N549.79billion recorded in December 2024.

Local governments recorded the same step-change. Councils received N288.93bn in January 2024, compared with N361.75billion in January 2025. Allocations crossed the N500billion mark in the final quarter of 2025, reaching N529.95bn in October, the highest for the year, before ending at N445.27billion in December 2025, higher than the N402.55billion shared in December 2024.

The 2024 figures show that allocations to councils typically sat in the N267bn–N294billion band for much of the first half of that year, while state allocations hovered around N366billion–N403billion.

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