By Blaise Udunze

The Central Bank of Nigeria’s decision to take full control of government securities issuance has been described by some as a bold move toward transparency and market efficiency. Yet, beneath the surface of this reform lies a web of structural dangers that could tighten credit even further, push interest rates higher, escalate exchange-rate instability, trigger regulatory turf wars, and strangulate the private sector, especially small and medium enterprises (SMEs) that already struggle to survive in Nigeria’s high-cost economy.

The policy shift became more pronounced with the rollout of a new Treasury Bills (T-Bills) auction regime, mandating that all bids be submitted through the CBN’s S4 digital interface. This transition officially bypasses the longstanding Primary Dealer Market Maker (PDMM) framework and represents the clearest sign yet that the apex bank is asserting complete control over how government securities are issued, priced, and distributed. In fact, the first major test of this system will occur with the federal government’s planned N700 billion T-Bills issuance scheduled for November 20, 2025 which is an unprecedented rollout that effectively transfers auction power from market intermediaries directly to the CBN.

Analysts say this shift is not merely operational; it is structural. The S4 interface, which has existed since 2014 but never fully deployed as the primary submission platform, now becomes the exclusive gateway for government securities issuance. All bids, whether retail or institutional must be lodged through S4 between 8:00 a.m. and 11:00 a.m., with the CBN maintaining full discretion to adjust the offer amount or reject bids it considers inconsistent with market conditions. Settlement will occur within 24 hours.

According to market expert Tajudeen Olayinka, CEO of Wyoming Capital Partners, the policy “is consistent with the CBN’s signal that it would take charge of the primary segment of the fixed-income market where government securities are issued.” Another veteran dealer put it more bluntly: “With S4, no dealer can see what rate others are quoting. All bids now meet at the same window. This dismantles the old advantage PDMMs enjoyed.”

Although transparency is improved by removing dealers’ visibility over competing bids, concerns have intensified over the broader consequences of the CBN monopolizing the government securities market. The danger is that this reform which is unaccompanied by strong institutional coordination between the CBN, the DMO, and the Ministry of Finance could trigger deeper systemic imbalances.

One of the most pressing fears is the crowding-out effect. If the CBN aggressively issues more government securities as part of its liquidity-management operations, banks, already heavily invested in government debt, will divert even more of their portfolios toward these risk-free instruments rather than lending to the real economy.

Nigeria’s top five banks known as the FUGAZ group (First HoldCo, UBA, GTCO, Access Corp, and Zenith Bank) provide compelling evidence of this shift. Their financial statements show a combined N49.152 trillion investment in securities and Treasury Bills as of September 2025, a sharp rise from N42.204 trillion at the end of 2024. In just nine months, they added nearly N7 trillion to these holdings.

Interest income from these investments surged by 33 percent, hitting N4.8 trillion in the first nine months of 2025 compared to N3.6 trillion in the same period of 2024.

–       Access Corporation led the pack with N15.25 trillion in securities holdings,

–       followed by UBA with N13.59 trillion,

–       Zenith at N9.05 trillion,

–       First HoldCo with N6.35 trillion, and

–       GTCO at N4.91 trillion.

These investments generated robust returns: Access earned N1.3 trillion; Zenith N1.14 trillion; UBA N1.03 trillion; FBN HoldCo N720 billion; and GTCO N570 billion.

For analysts, these numbers expose a structural vulnerability as Nigerian banks are quickly transforming into large-scale government lenders rather than engines of private-sector credit. As Dr. Muktar Mohammed of Lagos Business School explains, “Banks have found refuge in government instruments because they are safe, liquid, and yield high returns in a volatile economy, but this behaviour constrains credit growth to the real sector.”

Lending data confirms this.

–       Zenith Bank’s loan-to-deposit ratio slipped from 43 to 40 percent;

–       Access Corporation maintained a flat 41.2 percent despite rising deposits;

–       UBA’s ratio dropped to 28.2 percent;

–       GTCO’s remained stagnant; and only

–       First HoldCo showed notable improvement.

This trend is dangerous. Nigeria’s private sector, especially SMEs is already starved of credit. Lending rates hover between 28 percent and 35 percent, making capital unaffordable for most small businesses.

With the CBN taking full control of securities issuance, the likelihood is high that more liquidity will be absorbed through T-Bills and OMO bills, pushing interest rates further upward. The more attractive government securities become, the less incentive banks will have to lend to SMEs. This is how economies slide into cycles of low productivity, high unemployment, and weak domestic investment.

The implications do not end there. Excessive issuance of government securities could also destabilize the exchange rate. When interest rates remain artificially high to attract foreign portfolio investors into T-Bills, Nigeria becomes dependent on “hot money” which turns out to be short-term foreign inflows that exit the economy at the slightest shock. This pattern has historically triggered sharp naira depreciation, panic in the FX markets, and severe liquidity shortages in the banking sector. If the CBN uses this securities-controlled regime to sustain high yields, Nigeria risks attracting unstable capital inflows that will exit rapidly, putting pressure on the naira.

Beyond monetary and credit risks, there is a troubling regulatory dimension. The CBN’s move to migrate fixed-income trading and settlement from the FMDQ Securities Exchange, which is under SEC oversight to its own Real-Time Gross Settlement (RTGS) and S4 platforms has ignited a full-blown turf war between the CBN and the Securities and Exchange Commission.

Under the Investments and Securities Act (ISA) 2025, the SEC holds exclusive authority over trading venues. Critics warn that the CBN’s attempt to operate exchange-like infrastructure violates statutory boundaries and risks destabilizing the market.

Dr. Akin Olaniyan, CEO of Charterhouse Limited, described the move as “a potential recipe for dual regulation and confusion,” arguing that it may undermine investor confidence. Similarly, Dr. Walker Ogogo, pioneer Registrar of the Institute of Capital Market Registrars, noted that since the CBN already owns 16 percent of FMDQ, operating parallel infrastructure creates conflicts of interest that send negative signals to foreign investors.

MoneyCentral reports that the migration could trigger a 67 percent drop in FMDQ’s trading volume, weakening a system that has long supported Nigeria’s fixed-income ecosystem.

Veteran banker Victor Ogiemwonyi stated, “the CBN is not an exchange; it should not be involved in issuing, dealing, and settling securities. Conflating these roles creates unnecessary risk.” His concerns are grounded in the principle that market operators must be independent from regulators to prevent conflicts of interest. The CBN’s dual role as both regulator and operator blurs these lines and may set a dangerous precedent.

The real casualties of these structural conflicts will be SMEs and the broader private sector. These enterprises rely on bank credit to fund inventory, acquire machinery, expand operations, and withstand economic shocks. When banks prefer government securities over lending,

–       SMEs face higher rates,

–       stricter collateral requirements,

–       fewer loan products, and shorter tenors.

–       Many will be forced to downsize, lay off workers, or close altogether.

In an economy where SMEs account for over 90% of jobs, this contraction would be disastrous.

Another major overarching risk is that:

–       The CBN’s consolidation of securities issuance power without corresponding checks from the DMO and Ministry of Finance creates an unbalanced financial architecture where monetary priorities overshadow fiscal realities and private-sector growth.

–       Policies crafted in silos rarely produce macroeconomic stability. They produce distortions, uncertainty, and systemic fragility.

Nigeria stands at a critical junction. Securities issuance can be made transparent without centralizing all power in the CBN. Fixed-income markets can be cleaned up without dismantling the institutional balance that preserves confidence. What the country needs is coordination, not consolidation; collaboration, not domination.

If the CBN continues its takeover without robust guardrails, the result may be a financial system where banks stop lending, SMEs continue to collapse, interest rates remain high, the naira stays volatile, and regulatory conflicts scare away both local and foreign investors.

To avoid the dangerous risks ahead, Nigeria must:

1.     Strengthen collaboration between CBN, DMO, and Ministry of Finance. Debt issuance must reflect both monetary and fiscal realities not just liquidity needs.

2.     Prioritize long-term bonds over short-term T-Bills. This reduces rollover risk and provides stable funding at lower long-term cost.

3.     Implement SME-focused credit interventions through private banks, not direct CBN lending. Monetary policy should not attempt to replace commercial banking.

4.     Reduce government’s domestic borrowing needs. This requires fiscal reforms, spending discipline, and revenue expansion not more debt.

5.     Protect private-sector credit allocation. Regulators should discourage excessive bank investment in government securities.

Without these safeguards, the economy risks tilting dangerously toward monetary domination and private-sector suffocation.

The gains of transparency cannot come at the cost of institutional imbalance. Nigeria’s economic recovery depends on a thriving private sector, not an expanding government debt market. The central bank must not become the single most powerful issuer, dealer, regulator, and judge in its own market. That path leads not to stability but to systemic risk, risk that Nigeria’s fragile economy can ill afford.

Meanwhile, it is important for CBN to provide clarity on the economic rationale behind this centralisation of power. The CBN must come forward to justify how this shift will tangibly benefit the economy, particularly in the areas most sensitive to credit availability, financial stability and stability for Nigeria’s broader economy.

Blaise, a journalist and PR professional writes from Lagos, can be reached via: [email protected]