•How banks profited from lending in 12 months amid economic pressure
Nine Nigerian banks raked in a combined interest income of N14.26tn in 2024, an analysis of the audited financial results of the financial institutions shows.
As the banks made trillions of naira from the interest on loans given to customers during the review period, manufacturers counted their losses, groaning under the weight of soaring borrowing costs totalling N1.3tn for the same period.
An analysis of the audited financial results of First Holdco, Guaranty Trust Holding Company, Zenith Bank Plc, United Bank for Africa, FCMB Group, Fidelity Bank, Stanbic IBTC Holdings, Access Holdings and Wema Bank filed with the Nigerian Exchange Limited indicated that the interest income earned by nine banks in the 2024 financial year rose by 119.55 per cent to N14.26tn compared to N6.49tn in the previous year.
According to the Corporate Finance Institute, interest income is the amount paid to an entity for lending its money or letting another entity (individual or corporate) use its funds.
Commercial banks, in their financial intermediary roles, provide funding for the productive sectors of the economy.
A breakdown of the results of the nine banks showed that Access Holdings grew its interest income by 98.69 per cent to N3.11tn from N1.56tn in the previous year.
Zenith Bank’s interest income rose by 137.74 per cent to N2.72tn. First HoldCo, the parent company of FirstBank, saw its interest income increase by 155 per cent to close at N2.39tn.
Also appreciated by more than 100 per cent were the interest incomes to United Bank for Africa, N2.37tn (120 per cent), Guaranty Trust Holding Company, N1.32tn (148 per cent), and Stanbic IBTC Holdings, N566bn (109 per cent).
The interest income of FCMB Group rose by 75.16 per cent to N621.81bn. That of Fidelity Bank rose by 85.03 per cent to N803.05bn, and Wema Bank’s interest income increased by 91.03 per cent to close the year at N354.63bn from N185.64bn.
The financial institution with the highest interest income in percentage terms was First HoldCo, followed by GTCO and Zenith Bank Plc.
In actual terms, Zenith Bank raked in the highest interest income of N1.58tn, followed by Access Holdings, which recorded a N1.54tn increase compared to last year, and First HoldCo with N1.46tn.
Meanwhile, some of the lenders indicated that the interest income was accrued on bad loans.
For Zenith Bank, impaired financial assets amount to N18.25bn and N18.25bn (2023: N29.09bn and N5.48bn) for Group and Bank, respectively.
UBA said, “Interest income includes accrued interest on impaired loans of N4.26bn for the Group (Bank: N3.98bn) for the year ended 31 December 2024 and N4.64bn for the Group (Bank: N2.70bn) for the year ended 31 December 2023.”
Fidelity Bank indicated that its interest income on bad loans amounted to N8.10bn (2023: N6.19bn).
This revenue boost for the financial sector came on the back of sustained hikes in the Monetary Policy Rate by the Monetary Policy Committee of the Central Bank of Nigeria.
By the end of 2024, the MPC had increased the MPR by 875 basis points, pushing the benchmark rate from 18.75 per cent in 2023 to 27.50 per cent. A major argument for the MPC’s decision to hike rates was inflation.
The committee emphasised commitment to price stability as the bedrock of a thriving Nigeria, which necessitates substantial monetary tightening as headline inflation rose to 34.80 per cent as of December 2024.
On a year-on-year basis, the headline inflation rate was 5.87 per cent higher than the rate recorded in December 2023 (28.92 per cent).
This shows that the Headline inflation rate (year-on-year basis) increased in December 2024 compared to the same month in the preceding year (i.e., December 2023).
While the banks raked in trillions of naira from interest incomes, the real sector is not happy with the situation as funding costs climb.
Speaking at the recent Bankers Committee Town Hall, which the CBN organised in collaboration with the Bankers Committee in Lagos, the President of the Manufacturers Association of Nigeria, Francis Meshioye, decried the high cost of funding for businesses.
He said, “Manufacturers spent about N1.3tn on interest rate; the cost of funds last year, 2024, and that is huge. Next is the cost of energy, which was about N1.2tn. It’s between 30 and 35 per cent for the cost of funding and 30-40 per cent for the cost of energy.
“The fund that we use to pay for power is charged at around 35 per cent. We are paying 35 per cent for funds to pay for power. Some are even paying 37 per cent. How do you survive this?
“These two are very important things to address to be sure that we become competitive. Have we thought of getting long-term funding for manufacturers or businesses? We need to think outside the box.”
Meshioye urged the banks to tone down their drive for profit, stressing that the high interest rates were stifling manufacturers.
“It’s very clear that if we want to achieve anything meaningful, we must look at infrastructure, particularly power. We have the power to do so many things. We just need the will and do not always aim to make overly ambitious profits. If you kill the place you make the money from, then how will you survive?” he challenged the banks.
As the banks rake in trillions of naira, experts warned that Nigeria’s spiralling interest rates, now well above 20 per cent, are worsening poverty and crippling access to credit for small-scale entrepreneurs and farmers, further threatening the fragile economy.
The CBN has been adopting an aggressive monetary tightening, with the Monetary Policy Rate around 24.75 per cent, making commercial lending rates range between 28 per cent and 35 per cent. The high rates have made it nearly impossible for most businesses and individuals in the productive sectors to access affordable financing.
Financial analysts had argued that while the central bank aims to curb inflation, the unintended consequence has been a severe credit crunch in sectors critical to employment and economic growth.
They noted that small and medium enterprises, which make up the backbone of Nigeria’s economy, were being squeezed out of the credit market, and farmers were increasingly unable to fund the next planting season.
At the same time, commercial banks are thriving. With risk-free government securities and high-interest lending, banks are posting record profits, while investment in the real economy, including agriculture, manufacturing, and small-scale industries, continues to collapse.
According to the National Bureau of Statistics, over 133 million Nigerians are living in multidimensional poverty. Rising borrowing costs are making it harder for individuals and businesses to access funds for investment, expansion, or even basic survival.
A senior analyst at Financial Derivatives Company, Tunde Ajayi, recently said the imbalance reflects a serious distortion in Nigeria’s financial architecture, one that prioritises the profitability of banks over the health of the real economy.
According to Ajayi, commercial banks are making windfall profits by investing heavily in risk-free government securities and offering loans at exorbitant interest rates to a few large borrowers, while critical sectors such as manufacturing, agriculture, and small and medium enterprises are being financially strangled.
“This model is unsustainable. What we have is a system where banks are incentivised to lend to the government or big corporations at high yields, while millions of small businesses and farmers are left without access to the capital they need to grow,” he mentioned.
He further warned that the long-term implications are dangerous, as it undermine economic diversification, domestic production, and employment generation.
Ajayi stressed that without affordable credit, the real sector responsible for creating jobs and driving inclusive growth will continue to shrink, further widening the gap between the rich and the poor.
Also, an agricultural finance consultant, Ngozi Uko, warned that the situation is even more dire for rural farmers.
“Access to credit for smallholder farmers has virtually dried up. We are seeing a drop in agricultural productivity, which is directly linked to the rise in food prices. Food inflation is now at over 35 per cent, and it’s pushing more Nigerians into hunger,” Uko said.
(Punch)
