Nigeria’s banking sector is feeling the strain of rising inflation and tightening monetary policies, as escalating costs start to eat into profits despite growing revenues. Fresh financial reports from leading banks for the first quarter of 2025 reveal that the industry is grappling with surging expenses and shrinking margins.
The Central Bank of Nigeria’s drive to curb inflation has pushed the Monetary Policy Rate (MPR) to 27.5%, nearly double its level two years ago. While this high-interest environment has boosted banks’ gross earnings, it has also significantly raised their funding costs and operating expenses.
Leading banks like First Bank, United Bank for Africa (UBA), Guaranty Trust Bank (GTBank), Zenith Bank, Access Bank, and Fidelity Bank are all feeling the pressure. Their latest unaudited financial results show a clear trend: rising operating costs and interest expenses are beginning to undermine profitability.
At First Bank, operational expenses surged, eroding the gains from lower bad loan provisions and pushing the cost-to-income ratio up to 52.3%. The bank’s profit after tax (PAT) fell by 17.9% to N167.4 billion, largely due to a sharp drop in non-interest revenue.
UBA reported a steep rise in costs too, with funding expenses climbing and impairment charges quadrupling. Yet, it managed a 33.1% year-on-year growth in profit, reaching N189.8 billion, buoyed by a 37.3% increase in gross earnings.
GTBank faced a 23.2% spike in operating expenses, with its cost-to-income ratio rising sharply to 28.1%, up from 16% a year ago. Zenith Bank also saw its operating expenses jump by nearly 39%, lifting its cost-to-income ratio to 41.2%.
Access Bank recorded significant strain from interest expenses, which soared by over 71% year-on-year. This, along with a 25% rise in operating expenses, squeezed its profit growth to 14.7% despite a solid 42.7% rise in gross earnings. Its net interest margin narrowed considerably from 6.5% to 3.6%, reflecting higher costs tied to foreign currency deposits.
Meanwhile, Fidelity Bank appears to be navigating the challenges better than its larger peers. The tier-2 lender posted an impressive 290% increase in profit after tax, reaching N91.1 billion, with a more modest 28.6% rise in interest expenses compared to others.
Despite the pressure, most banks are still reporting profit growth, though at a slower pace. The overall picture shows Nigeria’s banks walking a tightrope — balancing between the gains from higher lending rates and the mounting costs brought on by inflation, regulatory levies, and operational expenses.
As the economic environment remains challenging, the ability of banks to manage costs while sustaining earnings will be crucial in determining their resilience through 2025.
