Liquidity Everywhere, Credit Nowhere: T-Bills Boom as Manufacturers Struggle for Funds
Nigeria’s financial system is flashing a troubling signal: cash is abundant, but it is not reaching the businesses that actually produce goods, create jobs, and drive growth.
At the centre of this imbalance is the Treasury Bills (T-Bills) market, which just recorded a dramatic surge in demand, even as manufacturers and SMEs grapple with a severe credit squeeze.
What Happened at the T-Bills Auction?
At the Treasury Bills auction held on February 4, investors showed overwhelming appetite for government securities:
• The 364-day T-Bill alone attracted about ₦4.4 trillion in subscriptions, against an offer of just ₦800 billion — an oversubscription of more than 400%.
• Despite this massive demand, the stop rate on the one-year bill fell sharply to 16.99%, down from 18.47% at the previous auction.
• Shorter-tenor bills (91-day and 182-day) saw weaker demand and slightly higher stop rates, suggesting investors are locking in longer-term yields before rates fall further.
This pattern confirms one thing: liquidity in the system is huge — but it is chasing safety, not productivity.
Why Is Money Avoiding the Real Sector?
Market operators say investors and banks are overwhelmingly choosing risk-free government paper over lending to manufacturers, farmers, and small businesses.
While this helps the government borrow cheaply, it exposes deeper structural problems:
• Manufacturing, agriculture, and SMEs are starved of credit.
• Banks prefer government securities because they offer decent returns with virtually no risk.
• In 2024 alone, listed banks earned ₦5.93 trillion from investments in securities — about 40% of their interest income.
Meanwhile, credit to the private sector actually declined by 3% year-on-year, while credit to government jumped by 26%.
The Real-Sector Pain Point
For businesses on the ground, the consequences are severe:
• Many manufacturers are being quoted interest rates of up to 30% per annum.
• SMEs, considered “high risk,” are pushed to microfinance banks where they pay about 5% monthly interest — nearly 80% when compounded.
• Such borrowing costs are unsustainable and are already leading to business closures, job losses, and rising non-performing loans.
Recent data confirms the strain:
• Nigeria’s manufacturing PMI fell to 105.8 in January from 112 in December.
• The overall private sector slipped into contraction for the first time in a year.
A System Skewed Toward Government Debt
The imbalance is becoming more entrenched:
• Treasury Bills and FGN bonds remain heavily oversubscribed.
• Pension funds, with assets exceeding ₦25 trillion, largely park funds in low-risk government instruments.
• Household investors are also increasingly choosing T-Bills over business investments.
Experts warn that this trend could fuel asset bubbles in equities and fixed income, while real economic activity remains weak.
⚠️ What Experts Are Warning About
Dr Muda Yusuf of the Centre for the Promotion of Private Enterprise describes the situation as a clear market failure. According to him:
• No economy can grow meaningfully when long-term funding for the real sector is unavailable.
• Manufacturers need single-digit interest rates to survive and expand.
• Development finance institutions must step up, as commercial banks continue to avoid risk.
Other analysts note that excess liquidity is beginning to spill into equities, pushing some stock prices beyond their fundamentals — a potential bubble risk if left unchecked.
The Big Picture
Nigeria is currently caught in a paradox:
• Liquidity is abundant.
• Government borrowing is cheap.
• Financial markets are booming.
• But the real sector — where growth and jobs come from — is struggling to breathe.
Unless policies are implemented to de-risk lending and redirect funds toward productive sectors, the economy risks remaining liquid but stagnant — rich in cash, poor in growth.
Nigeria’s financial system is flashing a troubling signal: cash is abundant, but it is not reaching the businesses that actually produce goods, create jobs, and drive growth.
At the centre of this imbalance is the Treasury Bills (T-Bills) market, which just recorded a dramatic surge in demand, even as manufacturers and SMEs grapple with a severe credit squeeze.
What Happened at the T-Bills Auction?
At the Treasury Bills auction held on February 4, investors showed overwhelming appetite for government securities:
• The 364-day T-Bill alone attracted about ₦4.4 trillion in subscriptions, against an offer of just ₦800 billion — an oversubscription of more than 400%.
• Despite this massive demand, the stop rate on the one-year bill fell sharply to 16.99%, down from 18.47% at the previous auction.
• Shorter-tenor bills (91-day and 182-day) saw weaker demand and slightly higher stop rates, suggesting investors are locking in longer-term yields before rates fall further.
This pattern confirms one thing: liquidity in the system is huge — but it is chasing safety, not productivity.
Why Is Money Avoiding the Real Sector?
Market operators say investors and banks are overwhelmingly choosing risk-free government paper over lending to manufacturers, farmers, and small businesses.
While this helps the government borrow cheaply, it exposes deeper structural problems:
• Manufacturing, agriculture, and SMEs are starved of credit.
• Banks prefer government securities because they offer decent returns with virtually no risk.
• In 2024 alone, listed banks earned ₦5.93 trillion from investments in securities — about 40% of their interest income.
Meanwhile, credit to the private sector actually declined by 3% year-on-year, while credit to government jumped by 26%.
The Real-Sector Pain Point
For businesses on the ground, the consequences are severe:
• Many manufacturers are being quoted interest rates of up to 30% per annum.
• SMEs, considered “high risk,” are pushed to microfinance banks where they pay about 5% monthly interest — nearly 80% when compounded.
• Such borrowing costs are unsustainable and are already leading to business closures, job losses, and rising non-performing loans.
Recent data confirms the strain:
• Nigeria’s manufacturing PMI fell to 105.8 in January from 112 in December.
• The overall private sector slipped into contraction for the first time in a year.
A System Skewed Toward Government Debt
The imbalance is becoming more entrenched:
• Treasury Bills and FGN bonds remain heavily oversubscribed.
• Pension funds, with assets exceeding ₦25 trillion, largely park funds in low-risk government instruments.
• Household investors are also increasingly choosing T-Bills over business investments.
Experts warn that this trend could fuel asset bubbles in equities and fixed income, while real economic activity remains weak.
⚠️ What Experts Are Warning About
Dr Muda Yusuf of the Centre for the Promotion of Private Enterprise describes the situation as a clear market failure. According to him:
• No economy can grow meaningfully when long-term funding for the real sector is unavailable.
• Manufacturers need single-digit interest rates to survive and expand.
• Development finance institutions must step up, as commercial banks continue to avoid risk.
Other analysts note that excess liquidity is beginning to spill into equities, pushing some stock prices beyond their fundamentals — a potential bubble risk if left unchecked.
The Big Picture
Nigeria is currently caught in a paradox:
• Liquidity is abundant.
• Government borrowing is cheap.
• Financial markets are booming.
• But the real sector — where growth and jobs come from — is struggling to breathe.
Unless policies are implemented to de-risk lending and redirect funds toward productive sectors, the economy risks remaining liquid but stagnant — rich in cash, poor in growth.