By John Oamen, Cutstruct CEO
In Africa’s rapidly urbanising economies, the demand for quality infrastructure and housing has never been higher. Nigeria alone faces an estimated housing deficit of over 20 – 28 million units — a challenge that reflects a broader need for investment in construction and development. Yet, when developers approach banks seeking capital, the response is often discouraging: “We don’t see a risk profile we’re comfortable with.”
This isn’t because banks are inherently opposed to development, nor because they lack capital. In fact, credit to Nigeria’s private sector, which represents the bulk of bank lending to businesses and individuals, stood at around ₦75.8 trillion in December 2025. While this reflects some rebound in lending activity, overall credit levels remain volatile and still below peak levels seen earlier in 2024, underscoring persistent caution among lenders amid tight financial conditions and elevated risk aversion.
Why Developers Perceive Banks as Saying “No”
To decode the message behind a bank’s hesitation, developers must first understand how banks evaluate risk. Banks are not charities; they are regulated financial institutions whose survival depends on rigorous risk management and sustainable returns. Two key realities shape how they lend:
1. Non-Performing Loans (NPLs) Raise Red Flags
For banks, Non-Performing Loans (NPLs), loans where borrowers have stopped making agreed-upon payments, are a core indicator of credit risk and influence how aggressively lenders provide new financing.
Recent data shows that Nigeria’s banking sector has seen a noticeable rise in NPL ratios following the end of regulatory forbearance measures that had previously allowed banks to restructure troubled loans without classifying them as non-performing. As of early 2026, the NPL ratio in Nigeria’s banking industry stood at an estimated 7%, surpassing the Central Bank of Nigeria’s prudential ceiling of 5%. This increase reflects the crystallisation of previously restructured facilities and heightened credit risk perception among lenders.
Earlier in 2025, 11 commercial banks reportedly exceeded the 5 % regulatory limit for NPLs due to reclassification of risk assets during annual credit quality assessments, up from about six banks in the prior year.
What this means for developers: when multiple banks exceed prudential NPL thresholds, risk appetite tightens across the entire financial system, making real-estate and construction financing even more challenging unless borrowers demonstrate strong credit profiles.
2. Sector Priority Influences Lending Behaviour
Another underlying reason developers often feel a “soft no” from banks is where banks choose to allocate their capital. Even as Nigerian banks have increased overall lending, the distribution remains heavily skewed toward certain sectors, and construction or real estate rarely leads the pack.
According to the latest Central Bank of Nigeria (CBN) data, credit to the private sector, which includes loans, trade credits, and other receivables, reached about ₦75.8 trillion in August 2025. Despite fluctuations through 2025, this level remains significantly higher than figures recorded in 2024, reflecting banks’ continued involvement in financing private sector activity.
Despite strong numbers overall, commercial banks historically allocate more credit to sectors they consider lower risk or more liquid.
Oil and gas companies often generate more predictable cash flows through export revenues or long-term contracts.
Manufacturing firms may offer tangible assets and inventory as collateral, which banks prefer for enforceability.
By comparison, construction and property projects involve longer timelines, regulatory uncertainties, and cyclical demand, making them less aligned with short-to-medium-term risk appetites.
The Real Misalignment: Bank Risk Models vs Developer Realities
Banks define risk through historical financial data, credit performance, and enforceable collateral. Developers, on the other hand, define success through project feasibility, land values, and future revenue streams, metrics that often lack standardised verification in frontier markets.
Here’s where the disconnect happens:
- Lack of verified historical financials: Many development firms, particularly emerging ones, cannot provide multi-year audited accounts or credible cash-flow histories.
- Collateral limitations: Banks often prioritise liquid, easily enforceable collateral. Land in Nigeria, despite its value, is tied up in customary tenure systems that complicate legal enforcement.
- Uncertain future revenue: Developers price assets against 5–10 year horizons. Banks seeking shorter-term certainty may not align with long construction cycles.
High Cost of Funds Further Widens the Gap
Commercial banks in Nigeria have raised lending rates significantly in response to inflation and monetary policy tightening. Some reports place standard commercial lending rates in the 20 – 30 % range, driven by benchmark rates and market conditions.
For developers, especially those building affordable housing or mixed-use projects, the cost of capital dramatically erodes returns, making traditional bank financing less viable.
Developers Are Adapting — But the System Must Evolve
The good news is that developers aren’t standing still. Across Africa, they are tapping alternative sources:
- Private equity and diaspora capital
- Crowdfunding and blended financing
- Public-private partnerships
- Development Finance Institutions (DFIs)
These models demonstrate that the capital is available, but it’s structured differently than traditional bank loans. And that’s a critical insight for any developer seeking funding.
How Developers Can Speak the Bank’s Language of Risk
To access funding more reliably, developers must align their approach with how banks think:
1. Build Credible Financial Histories
Banks rely on numbers they can audit. Proactively producing transparent financials, even before seeking capital, boosts credibility.
2. Enhance Collateral Quality and Legal Certainty
Clearing land titles or structuring assets in trust vehicles can reduce perceived risk and strengthen bank comfort levels.
3. Present Clear Cash-Flow Narratives
Banks are trained to look at cash flow, not just capital commitments. Demonstrating robust projections tied to verifiable market demand goes a long way.
4. Partner with Intermediaries and DFIs
Institutions like Africa Finance Corporation and development banks often bridge risk gaps, making commercial bank participation more palatable.
The Path from “No” to “Yes”
When a bank says “no,” it is rarely a rejection of ambition. It is a reflection of risk, as defined by its internal models, regulatory pressures, and capital obligations. The real opportunity lies in interpreting that signal correctly.
Developers who take the time to understand the architecture of financial decision-making position themselves differently. They move from seeking capital to structuring for capital.
The next phase of growth in our industry will not be led solely by those who can build the fastest, but by those who can build in ways that inspire institutional confidence. That shift begins with more honest exchanges, more transparency, and more intentional collaboration between financiers and developers.
If you are a developer navigating capital constraints, a financial institution reassessing your construction exposure, or a policy stakeholder interested in improving funding frameworks, I welcome the opportunity to engage in deeper conversations around this subject.