Manufacturers Abandon Costly Bank Loans as High Interest Rates Reshape Corporate Financing in Nigeria
This post has already been read 2230 times!
Nigeria’s manufacturing sector is undergoing a significant and strategic shift as leading companies continue to turn away from bank loans due to the prevailing high-interest-rate environment.
Fresh financial disclosures covering the first nine months of 2025 (9M’25) show that manufacturers have drastically reduced their reliance on commercial bank credit, opting instead for alternative and cheaper funding channels. Analysts say this trend could reshape the future of industrial financing in the country and have major implications for banks, policymakers, and the broader economy.
According to the latest filings, combined bank borrowings by major manufacturing firms fell by 20.3 percent to N2.014 trillion, down from N2.526 trillion recorded in the same period of 2024. The steep decline reflects a deliberate retreat from expensive credit as lending rates—driven by the Central Bank of Nigeria’s tight monetary policy—continue to hover above 30 percent for many corporate borrowers.
Manufacturers have responded by shifting their funding strategies toward equity financing, corporate bonds, commercial papers, and retained earnings. This pivot is already reshaping their financial structure, with aggregate finance costs dropping sharply by 52.8 percent, from N1.4 trillion in 2024 to N662 billion in 2025.
Despite the reduction in bank debt, the companies recorded impressive financial performance. Combined turnover surged by 37.9 percent to N10.1 trillion in 9M’25 from N7.3 trillion the previous year. Profitability also rebounded dramatically as firms moved from a combined loss of N116 billion in 2024 to a profit of N2.5 trillion in 2025. Yet, cost of sales rose by 57.9 percent to N5.7 trillion, highlighting persistent inflationary pressure on production inputs.
Across individual companies, the reduction in borrowings was evident. BUA Foods recorded a drop in its loan book from N1.559 trillion to N1.105 trillion. Nestlé Nigeria cut its bank debt from N653.70 billion to N521.01 billion, while Nigerian Breweries reduced its loans from N204.170 billion to N162.170 billion. Unilever Nigeria scaled down its borrowings from N2.8 billion to N2.2 billion.
NASCON Allied recorded one of the most dramatic declines as its debt fell from N3.3 billion to N67 million, a 98 percent reduction. Lafarge Africa’s borrowings dropped from N2.214 billion to N1.72 billion. Fidson Pharmaceuticals posted a decline from N8.979 billion to N12.27 billion.
Vitafoam’s debt rose to N13.99 billion from N7.8 billion, Okomu Oil reduced its borrowings from N7.1 billion to N5.57 billion, Presco Oil increased its borrowing from N46.5 billion to N159.8 billion, and Cadbury reduced its debt from N31.2 billion to N27.97 billion.
Major industrial players such as Dangote Cement, Dangote Sugar, International Breweries, Guinness Nigeria, and Champion Breweries did not take any new loans during the period, signalling a strategic withdrawal from high-cost bank credit.
This retreat from borrowing delivered immediate benefits in the form of lower financing expenses. Nestlé’s financing cost plunged from N369.2 billion to N55.2 billion. Nigerian Breweries’ financing cost dropped from N72.0 billion to N39.2 billion. BUA Foods cut its finance cost from N21.7 billion to N11.9 billion.
Dangote Sugar recorded N95.6 billion in finance costs, down significantly from N300.2 billion. NASCON’s finance cost fell from N934 million to N542 million. International Breweries reduced its finance cost from N29.150 billion to N7.2 billion. Lafarge Africa posted a drop from N5.396 billion to N3.65 billion, and Guinness reduced its financing cost from N120.851 billion to N109.7 billion.
Financial experts say the manufacturers’ move away from high-cost bank loans is a rational response to Nigeria’s restrictive monetary environment. David Adonri, Executive Vice Chairman of HighCap Securities Limited, said the pattern indicates a clear shift away from banks as primary financiers of working capital. He explained that although benchmark interest rates have eased slightly, lending rates remain prohibitively high, making it logical for companies to tap non-bank credit sources or rely on retained earnings.
Adonri warned that as borrowers continue to avoid bank credit while yields on government securities fall, banks may experience income pressures. He added that although cost of sales remains elevated, inflation-induced price adjustments and gradual economic recovery are helping firms regain margins, noting that the economy is slowly adjusting to new price realities.
Chief Executive Officer of the Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, attributed the fall in corporate borrowing to persistently high interest rates. He said many firms are now avoiding huge financing costs in a weak consumer environment and have increasingly turned to equity and commercial paper issuances. Yusuf expressed concern that the banking system is gradually disconnecting from the real sector, a development he warned could undermine economic productivity. He called on policymakers to create conditions that would enable banks to resume meaningful support for industry, noting that Nigeria’s recent rebound in corporate profitability reflects better FX liquidity and improved macroeconomic stability. However, he cautioned that when adjusted for inflation, the growth may be less robust than the headline figures suggest.
Veteran banker and stockbroker Tajudeen Olayinka offered a slightly different perspective, describing the 20.3 percent drop in borrowings not as a threat but as a sign of financial prudence. He noted that companies are avoiding high-interest obligations and possibly positioning themselves for lower borrowing costs in the future. Olayinka also linked the steep drop in finance costs to improved financial management and the naira’s appreciation, noting that the positive impact of macroeconomic stability cut across multiple sectors. He commended recent reforms under the Tinubu administration as necessary measures that are now beginning to yield results.
Public analyst and communications expert, Clifford Egbomeade, described the fall in borrowings as a defensive but rational reaction to the Central Bank’s tight monetary policy regime. According to him, the Monetary Policy Rate (MPR) remained at 27.5 percent through mid-2025, pushing effective lending rates above 30 percent. In such a climate, he said, working-capital borrowing became prohibitive, forcing firms to shift towards equity and commercial papers to avoid crippling interest obligations. Egbomeade added that the sharp drop in finance costs, despite rising input expenses, was primarily due to balance-sheet restructuring and reduced foreign exchange losses, rather than improved operational efficiency. He called on policymakers to move from stabilisation measures to policies that reduce production costs and unlock investment opportunities.
Analysts agree that the shift away from bank loans could pressure banks’ revenues as loan growth slows. With manufacturers increasingly leaning on non-bank financing channels, banks may resort more heavily to investment in government securities. The broader challenge, experts argue, is for policymakers to find ways to make credit affordable without fuelling inflation. They recommended targeted lending through the Bank of Industry, development finance institutions, and credit-guarantee schemes as possible solutions.
Despite signs of recovery, experts describe the manufacturing sector as still fragile due to inflation, high energy costs, and infrastructural constraints. However, restored FX stability, lower finance costs, and modest monetary easing have boosted confidence.
Dr. Yusuf expressed cautious optimism, saying that the fundamentals are improving and that, with strong policy consistency and revived credit channels, the sector could experience a stronger and more sustainable recovery in 2026.
