STATE governments and local government councils across Nigeria have significantly reduced their exposure to bank loans, collectively repaying about ₦547.52 billion within one year, amid a sharp rise in allocations from the Federation Account, findings have shown.
Data obtained from the Central Bank of Nigeria’s (CBN) latest Quarterly Statistical Bulletin indicate that the banking sector’s total claims on states and local governments dropped from ₦2.68 trillion in June 2024 to ₦2.13 trillion in June 2025, representing a 20.4 per cent year-on-year decline in sub-national debt to commercial and merchant banks.
The figures suggest an aggressive effort by sub-national governments to unwind costly bank obligations as revenues improved and borrowing costs soared during the period.
A closer look at the data shows that banks’ exposure to states and councils stood at ₦2.73 trillion in January 2024. By January 2025, the figure had fallen to ₦2.44 trillion, implying that about ₦292 billion was repaid within 12 months.
Although outstanding debts rose briefly to ₦2.59 trillion in February 2025 and eased slightly to ₦2.55 trillion in March, the balance stabilised around ₦2.44 trillion to ₦2.45 trillion in April and May before plunging sharply to ₦2.13 trillion in June 2025.
The month-on-month decline of about ₦313 billion between May and June 2025 marked the largest single adjustment in the period, pointing to a deliberate end-of-quarter strategy by states and councils to reduce bank liabilities.
Year-on-year, June provided the clearest picture of the shift, with more than half a trillion naira shaved off bank debts compared to the same month in 2024.
Analysts link the debt reduction to Nigeria’s prolonged period of tight monetary policy. Throughout 2024, the CBN’s Monetary Policy Committee (MPC) implemented aggressive rate hikes, raising the Monetary Policy Rate (MPR) from 18.75 per cent at the start of the year to 27.50 per cent by November 2024 in a bid to tame inflation and stabilise the naira.
In 2025, the MPC largely maintained the benchmark rate at 27.50 per cent, signalling a cautious pause. However, in September 2025, the committee cut the rate slightly to 27.00 per cent, marking its first reduction in five years, as inflation showed signs of easing.
By November 2025, the CBN reaffirmed the 27.00 per cent rate, balancing disinflation goals with financial stability concerns. Despite the marginal easing, borrowing costs remained high, encouraging states and councils to pay down expensive bank loans.
At the same time, inflows from the Federation Accounts Allocation Committee (FAAC) surged sharply, giving sub-national governments the fiscal space to settle debts.
Data from the Office of the Accountant-General of the Federation show that states and local governments jointly received ₦12.67 trillion in 2025, compared with ₦8.96 trillion in 2024, excluding the 13 per cent derivation fund. This represents a ₦3.71 trillion increase, or 41.4 per cent year-on-year growth.
Including the derivation fund, total receipts rose from ₦10.31 trillion in 2024 to ₦14.28 trillion in 2025, meaning an additional ₦3.98 trillion, or 38.6 per cent, flowed to states and councils.
The derivation component alone climbed from ₦1.35 trillion in 2024 to ₦1.62 trillion in 2025.
States were the largest beneficiaries in absolute terms, with their FAAC share rising from ₦5.19 trillion in 2024 to ₦7.31 trillion in 2025, an increase of ₦2.13 trillion, or 41 per cent.
Local government councils also saw a major boost, with allocations jumping from ₦3.77 trillion to ₦5.35 trillion, representing a ₦1.58 trillion increase, or 41.8 per cent.
Monthly data underline the scale of the improvement. In January 2024, states received ₦396.69 billion, compared to ₦498.50 billion in January 2025. Allocations peaked at ₦727.17 billion in October 2025, before ending the year at ₦601.73 billion, still far above ₦549.79 billion recorded in December 2024.
Local governments followed a similar trajectory, with receipts rising from ₦288.93 billion in January 2024 to ₦361.75 billion in January 2025. Council allocations crossed ₦500 billion in the final quarter of 2025, peaking at ₦529.95 billion in October, before closing at ₦445.27 billion in December, higher than the ₦402.55 billion shared a year earlier.
Overall, total FAAC allocations to all three tiers of government rose from ₦13.91 trillion in 2024 to ₦20.28 trillion in 2025, while total distributable revenue, including derivation, increased from ₦15.26 trillion to ₦21.89 trillion.
Despite the revenue windfall, concerns remain over the fiscal sustainability of some states. The Nigeria Extractive Industries Transparency Initiative (NEITI) recently warned that several states with heavy debt burdens still rank low in FAAC allocations but high in debt deductions.
In a statement by NEITI’s Acting Director of Communication and Stakeholders Management, Mrs Obiageli Onuorah, the agency noted that states with high debt ratios often struggle to fund critical projects despite record disbursements.
Similarly, the Director-General of the Debt Management Office (DMO), Ms Patience Oniha, urged state governments to reduce reliance on borrowing and focus on revenue generation and Public-Private Partnerships (PPPs).
Speaking at a workshop in Lagos organised under the States Action on Business Enabling Reforms Programme, Oniha said borrowing should not be the primary source of infrastructure funding, stressing the need to grow tax revenues and attract private capital to support development.