Banks Money Out, Economic system Loses Out: How Nigerian Banks’ N5.05Trn Authorities Securities Growth is Stifling Actual Development

By BLAISE UDUNZE

In a yr when Nigeria’s financial system continues to groan below the burden of inflation, unemployment, and weak buying energy, the banking sector has as soon as once more recorded an enormous windfall, not from lending to the true financial system or financing innovation, however from investing in authorities securities.

In line with knowledge compiled by MoneyCentral, Nigerian Tier-1 banks collectively realized N5.05 trillion in revenue from funding securities within the first 9 months of 2025 represents a staggering 42.28 % improve over the N3.55 trillion recorded in the identical interval of 2024.

At first look, this efficiency would possibly look like a testomony to the banking business’s resilience and monetary ingenuity. However beneath the lustrous revenue sheets lies a deeper financial dilemma that reveals how Nigeria’s banks are making more cash by lending to authorities than by lending to folks, small companies, and industries that are the very arteries that maintain productive financial life.

It’s no secret that Nigeria’s business banks have lengthy discovered consolation within the protected, predictable yields of presidency securities resembling treasury payments, bonds, and promissory notes. These devices are just about risk-free, backed by sovereign ensures, and sometimes ship engaging returns in a high-interest-rate atmosphere. For the banks, it’s a excellent enterprise mannequin the place depositors’ funds move in at low value, and people funds are simply parked in high-yield authorities paper with minimal danger or operational trouble. There isn’t any want to fret about non-performing loans, credit score evaluation, or the painstaking means of supporting small and medium enterprises (SMEs).

However for the financial system, it’s a tragedy of misaligned priorities. Whereas the banks luxuriate in “protected income,” the productive sectors like agriculture, manufacturing, transport, housing, and artistic industries stay starved of credit score. Nigeria’s SMEs, which account for over 80 % of employment and almost half of GDP, face prohibitive rates of interest, restricted entry to capital, and persistent underfunding. The result’s financial stagnation disguised as stability.

The information under tells the story clearly:

– Zenith Bank realized N1.14 trillion from revenue from short-term authorities securities, which is 55.49 % increased than 2024’s N734.14 billion.

– Access Bank made N1.13 trillion revenue from funding securities as at September 2025 which is 36 % increased than 2024’s N838.14 billion.

– GTCO realized N547.77 billion revenue from authorities bonds, which is 45.68 % increased than 2024’s N376 billion.

– United Financial institution for Africa (UBA) noticed its revenue from short-term authorities securities rise 29.77 % to N973.12 billion within the interval below assessment, up from N750.48 billion the earlier yr.

– FirstHoldco’s revenue from funding securities elevated 33.70 % to N720.15 billion in September 2025, from N538.59 billion in September 2024.

Collectively, these numbers paint a transparent image of the true financial system struggling to breathe, whereas the monetary sector is rising fats on sovereign debt. This isn’t banking as growth finance; it’s banking as arbitrage. And the size of this funding obsession is gigantic. Up to now teo years alone, the highest 10 listed banks have channeled a minimum of N20.4 trillion into funding securities and this large capital might have financed hundreds of thousands of jobs, supported hundreds of small companies, and accelerated progress in Nigeria’s productive sectors.

This has now caught the eye of Nigeria’s tax authorities. The Federal Inland Income Service (FIRS) just lately directed banks, stockbrokers, and different monetary establishments to deduct a ten % withholding tax on curiosity earned from investments in short-term securities. Previous to this directive, short-term payments had been tax-exempt to spice up returns for traders. The brand new rule requires tax to be deducted on the level of fee on devices resembling treasury payments, company bonds, promissory notes, and payments of trade.

It stays unclear how a lot the federal government expects to generate from this withholding tax. Nonetheless, the FIRS clarified that traders will obtain tax credit for the quantities withheld except the deduction represents a last tax. Notably, curiosity on federal authorities bonds stays exempt from the levy. “All related interest-payers are required to adjust to this round to keep away from penalties and curiosity as stipulated within the tax legislation,” FIRS Govt Chairman Zacch Adedeji mentioned within the official discover.

Yield-hungry traders together with banks are prone to be essentially the most affected by this directive. Within the first half of 2025 alone, Nigeria’s greatest banks realized N3.03 trillion in revenue from treasury payments, which represents a 60.40 % improve from N1.89 trillion recorded within the corresponding interval of 2024. GTCO, Zenith Bank Plc, United Financial institution for Africa Plc, Entry Holdings Plc, FirstHoldco Plc, FCMB Plc, Fidelity Bank Plc, and Stanbic IBTC Holdings Plc have been within the behavior of shopping for up home authorities bonds that provide among the many highest yields in rising markets.

By introducing this withholding tax, the FIRS goals to scale back extreme speculative funding in short-term securities and redirect liquidity into extra productive components of the financial system. Whether or not this coverage shift achieves that aim stays to be seen. In principle, taxing authorities securities might make lending to the non-public sector comparatively extra engaging. In observe, except accompanied by broader structural reforms resembling lowering credit score danger, bettering collateral enforcement, and stabilizing the macroeconomic atmosphere, banks could merely alter their margins and proceed enterprise as typical.

Nigeria is witnessing a rising disconnect between monetary progress and financial progress. On one aspect is the booming monetary financial system, pushed by banks’ buying and selling positive factors, FX revaluation, and funding returns. On the opposite aspect is the struggling actual financial system, the place factories shut, youth unemployment rises, and SMEs collapse below the burden of credit score hunger. The banks’ steadiness sheets could glitter, however the nation’s steadiness of welfare is grim.

As inflation eased barely to 18.02 % in September 2025, the Central Bank of Nigeria (CBN) lower the Financial Coverage Fee (MPR) from 27.5 % to 27 %. Whereas this transfer alerts a dovish tone, it does little to alter the truth that the price of credit score stays astronomically excessive. Business lending charges hover between 25 % and 35 %, which is totally out of attain for many small companies. In the meantime, banks can earn double-digit, risk-free returns on treasury payments. Confronted with that alternative, which banker would lend to a farmer or producer?

Past the figures, this pattern has human penalties. Each SME denied a mortgage represents jobs not created, taxes not paid, and improvements by no means realized. Each startup that shuts down for lack of funding represents a household’s dashed hopes. Each producer working under capability due to working capital shortages interprets into misplaced exports and better import dependence. When banks flip away from growth finance, the ripple impact touches each family starting from the market girl working a petty commerce to the tech entrepreneurs throughout the nation.

A number of components clarify why banks choose the consolation of presidency securities to the problem of real-sector lending. Many SMEs function informally, with out correct data or collateral, making them unattractive to conventional lenders. Nigeria’s judicial system typically makes mortgage restoration sluggish and unsure, discouraging risk-taking. Change price instability and inflation distort enterprise forecasts, making long-term lending dangerous. Banks additionally discover it simpler to satisfy liquidity and capital adequacy ratios by holding authorities paper. Govt bonuses and efficiency metrics are tied to quarterly income, not long-term financial impression. These components type an entrenched ecosystem of incentives that rewards hypothesis over manufacturing, in a system the place monetary stability comes at the price of actual progress.

If Nigeria should break away from this cycle, a paradigm shift is required, one which redefines the aim of banking in nationwide growth. The CBN and monetary authorities should create differentiated incentives for banks that channel the next share of their mortgage portfolio to productive sectors resembling agriculture, manufacturing, renewable vitality, and know-how. Tax rebates, decrease money reserve ratios, or credit score ensures might help de-risk these loans. Nigeria’s collateral registry, credit score bureaus, and chapter legal guidelines want modernization to scale back perceived danger, whereas the authorized system should assure quicker decision of credit score disputes.

Authorities, by means of the Bank of Industry (BOI) or related companies, can set up a blended-finance automobile that matches public capital with non-public lending, permitting banks to co-finance SME tasks with shared danger. Many small companies fail to entry credit score as a result of they lack correct documentation or enterprise plans. A coordinated monetary literacy program, supported by banks and chambers of commerce, might enhance their readiness for formal credit score. Finally, change should come from the highest. Financial institution CEOs and boards should see themselves not simply as revenue managers however as nation builders. The sustainability of their income depends upon the well being of the financial system that surrounds them.

If this imbalance persists, Nigeria dangers turning into a rustic the place banks thrive and industries die. The long-term value is profound. Financial progress will stay consumption-driven somewhat than production-led. Unemployment will worsen as SMEs fold up. Authorities borrowing will proceed to crowd out non-public funding. The naira will weaken attributable to import dependence and weak export diversification. Monetary capitalism, with out developmental conscience, will solely deepen inequality and discontent.

The time has come for Nigeria’s banking business, regulators, and policymakers to make a collective alternative: between simple income and enduring prosperity. It’s not sufficient to have fun trillion-naira incomes if the nation stays trapped in jobless progress. It’s not sufficient to report file steadiness sheets whereas hundreds of thousands of Nigerians stay unbanked and unemployed. True monetary innovation lies not in exploiting yields, however in empowering folks. The banks that can outline the following decade are those who look past treasury payments, particularly those who discover worth within the goals of Nigerian entrepreneurs, within the resilience of its farmers, and within the creativity of its youth.

The story of Nigeria’s N5.05 trillion securities revenue isn’t just about numbers; it’s about selections and their penalties. It reveals a monetary system that has overlooked its developmental mission, a authorities too depending on debt, and an financial system the place progress has develop into disjointed from human progress. But, it’s not too late to alter course. The current 10 % tax on short-term securities needs to be step one towards a deeper reform as one which forces a reallocation of capital from paper to folks, from hypothesis to manufacturing.

As yields fall and financial coverage adjusts, the good banks can be those who learn the writing on the wall realizing that the way forward for finance in Nigeria lies not in authorities debt, however in the true financial system as a result of it’s the solely financial system that actually issues. As a result of ultimately, a nation can not prosper when its banks are wealthy and its individuals are poor.

Blaise, a journalist and PR skilled writes from Lagos, might be reached by way of: [email protected]