Date: March 31, 2025
[Nelo], Thewatch.ng
LAGOS, Nigeria – As Nigeria grapples with soaring interest rates, the real sector comprising manufacturing, agriculture, and commerce—is feeling the squeeze, while the country’s banks have reported unprecedented profits exceeding N1 trillion in 2025.
This stark contrast highlights the growing disconnect between monetary policy impacts and economic realities on the ground.
The Central Bank of Nigeria (CBN) has maintained a tight monetary stance, with the benchmark interest rate hitting 27.50% as of February 2025, following a series of aggressive hikes aimed at curbing inflation. While this policy has bolstered bank earnings, it has stifled credit access for businesses, particularly small and medium enterprises (SMEs), which form the backbone of Nigeria’s real economy.
According to recent reports, private sector credit declined by N1.07 trillion in January 2025, dropping to N74.88 trillion from N75.90 trillion in November 2024. Analysts attribute this contraction to high borrowing costs, which have made loans unaffordable for many firms. “The real sector is suffocating under these rates,” said Chinedu Okeke, an economist at Lagos-based Financial Insights.
“Businesses can’t expand or even sustain operations when the cost of capital is this high.”
Meanwhile, Nigeria’s banking sector is thriving. Major deposit money banks, including Zenith Bank, GTCO, and Fidelity Bank, have capitalized on higher interest margins and foreign exchange gains, pushing collective profits past the N1 trillion mark in the first quarter of 2025 alone.
The recapitalization drive mandated by the CBN, which saw banks raise N1.7 trillion in new equity, has further strengthened their balance sheets, boosting investor confidence and stock market performance. The NGX Banking Index surged by 9.76% in January, outpacing the broader market.
However, this banking boom comes at a cost to the wider economy. Manufacturing, which relies heavily on credit, saw its share of private sector loans remain significant at 14.1%, yet growth has slowed as firms struggle to refinance debts or fund new projects. Agriculture, a priority sector for diversification, received just 9.2% of total credit, underscoring the limited support for non-oil growth drivers.
Industry stakeholders are sounding the alarm. “Banks are making money hand over fist, but the real sector is bleeding,” said Amina Yusuf, a spokesperson for the Manufacturers Association of Nigeria (MAN). “If this trend continues, we risk stunting long-term economic growth for short-term financial gains.”
The CBN has defended its policies, arguing that stabilizing inflation—down to 24.48% in January from 34.80% in December following a rebasing of the consumer price index—remains critical. Governor Yemi Cardoso has signaled a cautious approach, with forecasts suggesting possible rate cuts in the second half of 2025 if inflationary pressures ease further.
For now, the divide between a flourishing banking sector and a struggling real economy raises tough questions about Nigeria’s policy priorities. As businesses call for relief, the government and CBN face mounting pressure to balance financial stability with sustainable growth.
