Banks’ high profitability trend amidst worsening economy a misnomer – Experts

By Josiah Nkemakolam

Nigeria’s banking sector closed the 2025 financial year with another season of record profits, reinforcing one of the most striking paradoxes in the country’s economic life: the nation’s biggest lenders are flourishing while households, small businesses and the productive economy they are meant to serve continue to struggle under the weight of inflation, high borrowing costs and weak purchasing power.

From Lagos to Kano, millions of Nigerians spent much of 2025 battling rising food prices, climbing transport fares, volatile exchange rates and shrinking disposable incomes. Small and medium-scale enterprises battled declining consumer demand, while manufacturers faced soaring production costs and near-impossible access to affordable credit. Informal traders reported falling patronage as consumers cut spending to essentials.

Yet, amid these harsh realities, the country’s major lenders posted some of the strongest balance sheets in their histories.

Record Profits Across Tier-One Banks

Nigeria’s five biggest banks, Zenith Bank, Guaranty Trust Holding Company (GTCO), Access Holdings, United Bank for Africa (UBA) and First Holdco, collectively generated trillions of naira in pre-tax profits during the 2025 financial year, driven by high interest income, treasury operations, foreign exchange-related gains and growing digital banking revenues.

Zenith Bank, the country’s most capitalised lender, posted a profit before tax of N1.263 trillion for the year ended 31 December 2025, a figure that, while slightly lower than the N1.327 trillion recorded in 2024, still represents extraordinary returns relative to the broader macroeconomic environment. Guaranty Trust Holding Company reported a pre-tax profit of N1.23 trillion, also marginally below its N1.27 trillion 2024 outing, reflecting modest pressure from higher taxation and tighter monetary conditions. Access Holdings recorded a profit before tax of N1.007 trillion, a 16.2 per cent increase over its N867 billion result in 2024, supported by asset expansion and robust interest revenues. United Bank for Africa leveraged its pan-African franchise to sustain strong earnings growth across multiple markets, while First Holdco remained among the country’s highest-earning financial institutions despite rising impairment charges and operational costs.

In total, analysts estimate that these five institutions generated well above N4 trillion in combined pre-tax profit by the close of 2025, an extraordinary haul recorded against the backdrop of one of the most difficult years in recent memory for ordinary Nigerians.

Profits Built on Rates, Not Growth

For many economists, the impressive earnings figures do not necessarily reflect a healthy economy. They reveal, instead, a banking system that has become progressively disconnected from the productive sectors it is supposed to support.

“The profitability of Nigerian banks today is largely a reflection of economic distress, not broad-based economic expansion. Banks are earning more because interest rates are high, government securities are yielding heavily and customers are paying more fees. That is different from banks fuelling industrial growth.”

Dr. Tunde Afolabi, economist, Abuja

Throughout 2025, the Central Bank of Nigeria maintained a tight monetary policy stance in a bid to tame stubbornly elevated inflation. High benchmark interest rates pushed yields on treasury bills and government bonds sharply upward, creating lucrative opportunities for banks to park assets in risk-free government instruments rather than extend long-term credit to businesses.

As a result, many lenders increasingly concentrated their portfolios in government securities where returns were safer and more predictable. Interest income expanded sharply during the year as loan repricing, treasury investments and elevated lending rates boosted margins. Data from several banks confirmed that this trend was the single biggest driver of profitability growth, even as real-sector activity remained weak.

At the same time, businesses complained loudly that access to credit became more difficult and more expensive. Borrowing rates climbed above 30 per cent in many cases, making investment plans nearly impossible to execute. Manufacturers, agribusiness operators and small-scale entrepreneurs found themselves locked out of the very financial system posting historic returns.

Crowding Out the Private Sector

Several analysts describe the underlying dynamic as a classic crowding out effect, where heavy government borrowing absorbs liquidity that might otherwise flow to productive enterprises. When the state offers treasury bills at generous yields, banks naturally concentrate their assets where returns are highest and risks are lowest. The outcome is a misallocation of capital at the expense of the private sector.

This has created what many observers describe as a painful contradiction. While banks announced massive profits and rewarded shareholders with stronger dividends and capital appreciation, many enterprises cut operations, shed jobs or delayed expansion because financing costs had become unsustainable.

“Bank profits should ideally mirror the strength of the real economy. If factories are expanding, agriculture is booming and exports are growing, then rising bank profits make sense. But when businesses are shrinking and consumers are under pressure, extraordinary banking profits become difficult to interpret as a healthy signal.”

Kemi Oladipo, investment analyst, Lagos

Nigeria’s GDP growth remained modest throughout 2025, unable to match the pace of population expansion or offset inflationary pressures. Though official growth figures suggested the economy remained technically positive, real purchasing power continued to erode in most households. Food inflation was especially severe, rendering staple commodities increasingly unaffordable for millions of citizens.

Banking stocks, meanwhile, remained among the most actively traded on the Nigerian Exchange as investors sought refuge in companies capable of preserving value amid inflationary uncertainty ,a dynamic that further widened the gap between financial-sector performance and the experience of the broader economy.

The Rate Environment as an Earnings Engine

Beyond government securities, another powerful driver of bank profitability in 2025 was the repricing of existing loans. As benchmark rates climbed, banks adjusted their lending rates upward, increasing interest income substantially. Customers carrying existing credit facilities found themselves paying significantly higher servicing costs.

For corporate borrowers already navigating currency volatility and imported inflation, the additional financing burden worsened cash-flow pressures and raised non-performing loan risks in some sectors.

Ironically, however, the same harsh monetary environment that squeezed borrowers improved banks’ earnings margins. Banks also generated considerable income from transaction charges, commissions, electronic banking services and foreign exchange trading — creating multiple revenue streams largely insulated from the economic hardship affecting their customers.

Olatunde Amolegbe, former president of the Chartered Institute of Stockbrokers, attributed much of the banking sector’s strong performance to this combination of elevated interest rates and currency movements. He noted that naira devaluations created significant foreign exchange valuation gains for lenders that held net long positions in foreign currencies, substantially boosting pre-tax profits beyond what interest income alone would have delivered.

Executives Defend the Earnings

Senior banking executives have pushed back against characterisations of their profits as purely opportunistic. Segun Agbaje, Group Chief Executive Officer of GTCO, has argued that the sector’s resilience reflects disciplined operational efficiency, strategic diversification beyond traditional banking, and deliberate investment in digital infrastructure that has created durable new revenue streams. He has maintained that the profitability is sustainable rather than accidental, pointing to the group’s ability to generate strong returns across varied economic conditions.

“Banks are benefiting from a high-rate environment, but the real economy is paying the price. The challenge is that this kind of profitability cannot sustain long-term economic development because businesses cannot continue borrowing at these levels indefinitely.”

Musa Ibrahim, financial consultant

Indeed, the rapid growth of electronic transactions and fintech partnerships has created genuine new revenue streams for many lenders, helping offset macroeconomic volatility and widening financial access for millions of previously unbanked Nigerians. That represents real progress. But critics argue that access without affordable credit does not build a factory, purchase equipment or grow an agricultural enterprise.

What Must Change

For many analysts, the enduring concern is not that banks are profitable but that their profitability has become structurally decoupled from productive economic activity. In healthier financial systems, bank earnings grow alongside industrial expansion, rising employment, stronger exports and increased consumer spending. In Nigeria’s case, the opposite has increasingly held true.

Addressing this requires action on several fronts. Government must reduce its reliance on domestic borrowing so that the state stops crowding private enterprise out of the credit market. Lending infrastructure must be strengthened , through better credit registries, modernised collateral frameworks and faster commercial dispute resolution , to make business lending more viable for lenders. Fee structures should be reviewed so that charges reflect genuine value rather than substituting for productive intermediation.

Banks themselves must also recalibrate. Greater specialist expertise in agriculture, manufacturing, exports and SME finance would allow lenders to assess risk more accurately and identify commercially attractive opportunities they currently pass over. Targeted credit guarantee schemes and development finance institutions can help share the risk of lending to sectors commercial banks consider too uncertain.

The urgency is not merely economic. Nigeria’s population is young and growing rapidly, demanding jobs at scale. Without adequate financing flowing to productive enterprises, those jobs will not materialise. The social consequences , rising inequality, unemployment and diminished living standards — would reach well beyond a quarterly earnings report.

A Dangerous Misreading

As Nigeria moves deeper into 2026, the central reality remains unchanged: the strong profitability of its banks has not translated into broad economic relief for businesses or households. The banking sector may be posting historic earnings, but millions of citizens continue to face rising living costs, shrinking purchasing power and constricted economic opportunity.

Celebrating soaring bank profits without examining the underlying conditions that produced them amounts, in the view of many analysts, to a dangerous misreading of the country’s financial reality. The numbers may look impressive on paper, but for the manufacturers, farmers, small traders and salary earners who form the backbone of the Nigerian economy, they reflect a system in which financial institutions are surviving , and even thriving, while the productive sectors they are meant to support remain under severe and sustained strain.

That contradiction, if left unaddressed, will continue to define the paradox at the heart of Nigeria’s economic story.