Nigerian manufacturers pull back from bank loans as interest rates bites
Firms turn to equities, bonds, and retained earnings, driving finance costs down amid rising profits
Leading Nigerian manufacturers are significantly scaling back bank borrowings as the country’s persistently high interest rate regime reshapes corporate financing. Data from financial reports covering the first nine months of 2025 reveal that combined bank loans across major manufacturers fell by 20.3 percent to ₦2.014 trillion from ₦2.526 trillion in the same period of 2024.
According to Financial Vanguard, the decline reflects a deliberate shift by firms toward alternative funding sources, including equities, corporate bonds, and retained earnings. The move has had an immediate impact on the sector’s finances, with aggregate finance costs dropping sharply by 52.8 percent to ₦662 billion from ₦1.4 trillion a year earlier.
Simultaneously, the combined turnover of these companies jumped 37.9 percent to ₦10.1 trillion, while profits reversed from a loss of ₦116 billion in 2024 to a ₦2.5 trillion gain in 2025. Cost of sales, however, climbed 57.9 percent to ₦5.7 trillion, highlighting the ongoing pressure of input inflation.
A breakdown of individual companies shows BUA Foods leading the decline in borrowings, with its loan book falling to ₦1.105 trillion from ₦1.559 trillion. Nestlé Nigeria recorded ₦521.01 billion, down from ₦653.70 billion, while Nigerian Breweries reduced borrowing to ₦162.17 billion from ₦204.17 billion.
Other firms followed suit, including Unilever Nigeria, NASCON Allied, Lafarge Africa, Fidson Pharmaceuticals, Vitafoam, Okomu Oil, Presco Oil, and Cadbury. Dangote Cement, Dangote Sugar, International Breweries, Guinness, and Champion Breweries reported no new borrowings, reflecting a strategic retreat from expensive bank credit.
Also Read: The disappearing Aboki Dollar: From streets to smartphones
Industry experts attribute the reduced appetite for bank loans to high lending rates that make working-capital financing prohibitive. David Adonri, Executive Vice Chairman of HighCap Securities Limited, told Financial Vanguard that the trend underscores a shift away from banks as the primary source of working capital. “Although the benchmark rate has declined slightly, lending rates remain elevated.
Many firms are turning to cheaper or more stable funding sources, such as commercial papers and retained earnings,” he explained. Adonri added that lower borrowing costs have helped firms manage margins despite rising input costs, reflecting a gradual realignment of the productive sector.
Dr Muda Yusuf, Chief Executive of the Centre for Promotion of Private Enterprise, emphasised that persistently high interest rates explain the decline in bank financing. “Companies are cautious about incurring high financing costs in an economy with weak purchasing power,” he said, noting that many firms are now relying on equity funding and commercial papers. Yusuf warned that the move signals a growing detachment of banks from the real sector, limiting their ability to support production, and urged policymakers to create conditions that reconnect banks with industry.
Banker and chartered stockbroker Tajudeen Olayinka described the 23 percent fall in bank borrowings as financially prudent rather than alarming. “This simply means companies accessed other funding sources that were cheaper or more stable. It may also reflect expectations that interest rates will ease in the future,” he added.
Olayinka also linked the 52.8 percent drop in finance costs to improved financial management and the Naira’s appreciation, noting that macroeconomic stability is positively impacting manufacturing and other sectors.
Public analyst Clifford Egbomeade described the reduction in bank borrowings as a “defensive, rational response” to the Central Bank’s tight monetary stance. With the monetary policy rate maintained at 27.5 percent through mid-2025, effective lending rates remained above 30 percent, prompting firms to repay existing loans or shift to non-bank funding to avoid crippling interest expenses.
Egbomeade noted that while finance costs fell, rising input costs mean the profit rebound reflects balance-sheet management and FX stability rather than operational efficiency or new investment growth.
The trend also carries implications for banks, as reduced lending may constrain interest income while corporate balance sheets strengthen. Experts warn that sustained high interest rates and decoupled lending rates could widen the gap between financial institutions and the real economy, emphasising the need for targeted interventions such as development bank facilities or credit guarantees.
Despite the cautious optimism, experts describe the manufacturing sector’s recovery as fragile. Inflation, high energy costs, and infrastructure bottlenecks continue to challenge competitiveness.
Yet, with lower finance costs, improved FX liquidity, and modest monetary easing, confidence is gradually returning. Dr Yusuf concluded that if policy consistency continues and credit channels are revived, 2026 could consolidate the sector’s recovery and strengthen Nigeria’s productive capacity.
