Why Nigerian banks don't like lending

Loans are and have always been crucial for economic survival. Many businesses need them at various points in their lifecycle to power up economic activities from production to employment or meet other specific goals.

The most recent EFInA report shows that 51% of Nigerian adults want to invest in a business. Yet, few Nigerians take bank loans to meet their goals. The same EFInA report recorded that only 5% of Nigerians used loans from formal institutions to meet their goals. A huge number (26%) did nothing, while about 40% used non-financial mechanisms such as working more.


Key takeaways:
  • One of the core mandates of commercial banks is to lend out money. Banks make significant income from lending and help businesses and firms expand. However, lending from Nigerian banks has dropped over time.

  • Between 2017 and 2020 the proportion of bank loans compared to deposits has dropped by 26%. In addition, with a 58% loan-to-deposit ratio, Nigerian banks don’t lend as aggressively as international peers such as South Africa, where banks lend out 91% of their deposits.

  • The Central Bank of Nigeria (CBN) has tried to remedy this situation by issuing a directive whereby banks give out a minimum of 65% of their deposits as loans. However, tier 1 banks continue to ignore this rule amidst other alternatives to earn income and because of the prevalent risks in lending to firms and individuals in Nigeria.

Interest income from loans is the lifeblood of financial institutions, particularly banks. For example, income from loans and advances to customers made up 38% of Zenith Bank’s group ₦766 billion gross income in 2021.

Interestingly, Nigerian banks do not give out loans as aggressively as their international peers. One way to spot this is

This story is only available to Premium subscribers Subscribe or sign in to finish reading

Not ready to subscribe? Register to read a selection of free stories

Adesola Afolabi

Adesola Afolabi

Read Latest

How Nigeria’s lawmakers enabled its fiscal crisis

PREMIUM - 03 FEB 2023

3 risks for Nigeria’s investors in 2023

PREMIUM - 02 FEB 2023

Why Nigerians abroad cannot vote during elections

PREMIUM - 01 FEB 2023

Will Ibom Power’s new license improve Akwa Ibom's electricity?

PREMIUM - 31 JAN 2023

Download our mobile app for a more immersive reading experience

Scan QR code
mobile download