T-Bill Demand Surges Over 400% Amid Credit Squeeze in Nigeria’s Manufacturing Sector
Nigeria’s Treasury Bills have witnessed a staggering surge in demand, with the February 4 auction seeing subscriptions jump to about N4.4 trillion—over 400% above the N800 billion offered. The overwhelming response, particularly for the 364-day bills, underscores the preference for risk-free government securities in an economy where liquidity is abundant but real sector financing remains constrained. While investors enjoy safer yields, manufacturers and small businesses are facing a credit crunch, with some paying interest rates of up to 5% monthly.
Financial experts warn that the growing gap between abundant financial liquidity and weak real sector funding is distorting asset prices, slowing economic growth, and threatening monetary policy effectiveness. Dr. Muda Yusuf, founder of the Centre for the Promotion of Private Enterprise (CPPE), noted that banks and institutional investors are prioritizing low-risk government securities over lending to manufacturers, farmers, and SMEs, which are struggling with high-interest loans and strict collateral requirements. This mismatch, he said, risks long-term stagnation in job creation and output growth.
The Treasury Bill auction revealed a sharp drop in the stop rate for the one-year bill to 16.99% from 18.47%, reflecting aggressive bidding and expectations that yields may continue to soften. In contrast, short-term bills saw modest demand, indicating cautious liquidity positioning at the short end. Analysts say the surge in T-Bill purchases reflects both excess cash in the system and investor appetite for predictable returns, leaving the productive sectors largely underfunded.
Recent data highlights the depth of the real sector challenges. Nigeria’s manufacturing PMI fell to 105.8 in January, down from 112 in December, while the overall private sector contracted to 49.7 for the first time in a year. Meanwhile, credit to the private sector dropped from N78.02 trillion in December 2024 to N75.83 trillion by year-end, while government borrowing surged by 26% to N34.22 trillion. Experts warn that without targeted policy intervention, the economy risks being trapped in a cycle of abundant liquidity with stagnant real growth.
Market operators urge development finance institutions and commercial banks to step up and bridge the funding gap. Dr. Paul Uzum of Halo Capital Management highlighted that while excess liquidity has flowed into equities, inflating prices, sustainable growth requires long-term investment in the real sector at affordable rates. Unless banks and policymakers redirect funds from risk-free securities to productive sectors, Nigeria’s manufacturers and SMEs may continue to struggle, threatening job creation and overall economic stability.\
source: The Guardian