Nigeria’s major commercial banks are bracing for tighter margins and weaker earnings in 2025 as interest-rate cuts and rising loan impairment charges pressure profitability. In the first half of the year, tier-one lenders including Guaranty Trust Holding Company Plc (GTCO), Zenith Bank Plc, Access Holdings Plc, United Bank for Africa Plc (UBA), and First HoldCo Plc all reported slower profit growth despite higher transaction volumes and continued investment in digital channels.
According to BusinessDay Nigeria, GTCO’s after-tax profit dropped by about 50 percent compared to the same period in 2024, while Access Holdings and First HoldCo recorded declines of 23.3 percent and 20.7 percent respectively. Zenith Bank’s profit fell by roughly 8 percent, with UBA posting a modest gain of about 6 percent.
Policy Shift and Its Ripple Effects
The profit slowdown follows the Central Bank of Nigeria (CBN)’s decision to reduce the Monetary Policy Rate (MPR) to 27 percent from 27.5 percent, its first rate cut in five years. The move was intended to stimulate borrowing and investment after several quarters of tight monetary policy. However, analysts from The Financial Times and Reuters note that the easing has compressed net interest margins (NIMs) — the gap between what banks earn on loans and what they pay on deposits — significantly reducing banks’ primary revenue source.
Moody’s Investors Service also cautioned that falling lending yields are outpacing the reduction in deposit costs, further eroding profitability.
Other Drag Factors: Credit Risk and Non-Interest Income
Beyond margin compression, several factors are weighing on bank performance:
- Rising impairment charges – As Economic Confidential reported, banks have had to increase provisioning for non-performing loans following stricter regulatory supervision and rising credit risks.
- Reduced foreign-exchange gains – Finance in Africa observed that the stabilization of the naira has diminished the large FX revaluation gains that supported profits in 2024. For instance, UBA’s foreign-exchange income declined sharply from over ₦300 billion last year to less than ₦50 billion in H1 2025.
- Non-interest income growth insufficient – Although several banks have expanded digital and fee-based services, the gains have not yet offset the loss in interest-related income.
Strategic Responses: Diversification in Focus
To cushion the impact, banks are shifting toward non-interest income and alternative growth channels.
According to Business Day Nigeria, many institutions are investing in:
- Digital banking and payment innovation – expanding mobile and online transaction platforms to generate fee-based income.
- Asset-management and insurance services – diversifying into wealth management, pension administration, and micro-insurance to reduce dependency on loan interest.
- Cross-border expansion – using regional subsidiaries in Ghana, Kenya, and other African markets to broaden their income base and hedge domestic risks.
Access Holdings, for example, reported strong growth in its pension and insurance subsidiaries even as group profit declined.
Outlook: Balancing Growth and Stability
Analysts interviewed by Business Day and Reuters
- Ability to grow new revenue lines amid tighter margins.
- Loan-book quality and the risk of further defaults in a sluggish economy.
- CBN policy direction — whether further rate cuts or currency adjustments could deepen or ease the margin squeeze.
- Investor confidence, which will depend on how well banks communicate strategic plans and maintain dividend stability.
Implications for Stakeholders
- Borrowers may enjoy lower lending rates, but depositors could see reduced returns as banks manage cost pressures.
- Regulators must strike a balance between supporting growth and preserving financial stability.
- Investors will likely favor banks with diversified portfolios, solid governance, and a strong digital footprint.
- The broader economy could experience slower credit expansion if banks grow more cautious in lending.
Conclusion
Nigeria’s leading banks are entering a period of transformation. The combination of lower interest rates, tighter credit conditions, and evolving customer behavior is forcing institutions to rethink traditional banking models. The winners in this environment will be those agile enough to pivot toward technology-driven, service-based revenue streams while maintaining robust risk management and investor confidence.
Tolulope Ojo, GNA News Business Desk
