By Blaise Udunze
Nigeria’s economy has been buffeted by storms in recent years with currency volatility, galloping inflation, surging interest rates, and dwindling consumer purchasing power. Yet, amid these macroeconomic headwinds, corporate organisations, especially banks, continue to post eye-popping profits.
Five of Nigeria’s top 10 banks reported a combined pre-tax profit of N4.6 trillion in 2024, a 70 percent increase from the previous year with Zenith Bank and Guaranty Trust Holding Company crossing the trillion-naira mark for the first time.
This paradox raises a fundamental question: how are banks thriving on paper in an economy where businesses are shutting down, households are under severe strain, and government debt is ballooning?
As of the first half of 2025, the banking industry finds itself at a crossroads. Barely months after announcing staggering profit results, some in excess of N500 billion amongst commercial banks are now scrambling to meet the Central Bank of Nigeria’s (CBN) recapitalisation directive. Many are racing back-to-back to the capital market to raise fresh funds.
Behind the strong showing of the market leaders lies a deeper concern: a number of smaller commercial banks and regional players are still struggling to formulate credible recapitalization strategies.
Adding to the puzzle is the CBN’s decision to bar lenders from paying dividends and bonuses, insisting that earnings must be preserved to strengthen capital buffers.
For the average Nigerian, the contradiction is glaring: how can banks boast of record profits yet struggle to raise capital to meet regulatory requirements?
Analysts argue that much of these “profits” are not the outcome of robust productivity or genuine market expansion but rather accounting gains from naira devaluation, speculative positions, high interest rate spreads, loopholes in financial reporting, and arbitrary charges.
Profits on Paper, Weak Capital in Reality
Nigerian banks are witnessing a slowdown in profit growth in 2025 as the extraordinary windfalls from naira devaluation and high interest rates taper off.
Data from the Nigerian Exchange Limited (NGX) show that the combined after-tax profit of nine major lenders including Zenith, GTCO, Access, UBA, Fidelity, Wema, Stanbic IBTC, FCMB, and FBN Holdings rose marginally by 0.74per cent to N1.35 trillion in Q1 2025, compared to the record 274.3per cent surge posted a year earlier.
Much of the earlier profit boom was driven by the floating of the naira in mid-2023 and subsequent devaluations, which allowed banks to book huge foreign exchange revaluation gains simply by holding dollar assets. However, analysts warn these paper gains were non-cash items that added little to banks’ real capital strength.
The apex bank has since barred lenders from deploying such gains for dividends or operating expenses, insisting they be held as buffers against future currency shocks.
With foreign exchange gains now normalising and credit expansion still sluggish, analysts say banks’ reliance on one-off windfalls has exposed underlying weaknesses in core operations such as lending, deposit mobilisation, and fee income.
“The era of abnormal profit growth is over,” said Tony Brown, a banking analyst in Abuja. “The numbers looked strong on paper, but the real test will be how banks sustain earnings through traditional banking activities.”
“The so-called profits are accounting gymnastics,” a Lagos-based analyst said. “They look good in shareholder reports but add little to the core equity needed for recapitalization.”
Banks Profit as Rate Hikes Widen Interest Spreads, squeeze Borrower
Nigerian banks are cashing in on wide interest rate spreads, boosted by the CBN’s tight monetary stance, which has kept the policy rate at 27.5per cent into 2025. While lending rates have soared into double digits, deposit rates remain low, leaving savers shortchanged and borrowers under pressure.
Analysts say this asymmetric response allows banks to preserve profitability at customers’ expense. “Simply buying government Treasury bills with customers’ deposits was enough for banks to return profit with yields reaching 25per cent” said Abuja-based analyst Chike Osigwe. “On top of that, they charge high lending rates while paying much less to depositors.”
Prof. Uche Uwaleke, President of the Capital Market Academics of Nigeria (CMAN), noted that Tier-1 banks are declaring huge profits despite weak economic growth. He warned of a growing disconnect between banks’ fortunes and struggling sectors like manufacturing and agriculture, stressing the need to ensure customers and the real economy share in banking gains.
Mirage of profits powered by Arbitrary Charges
Nigerian banks’ record profits in 2024 have been linked not only to monetary policy tailwinds but also to a surge in arbitrary charges imposed on customers. Despite CBN’s repeated sanctions for breaching its Guide to Charges, lenders continue to rack up billions from fees on transfers, withdrawals, ATM use, account maintenance, SMS alerts, and other deductions.
With over 312 million active bank accounts, these charges now contribute more to profitability than traditional lending or FX operations. Five tier-1 banks alone posted N4.6 trillion in pre-tax profit in 2024, a 69.5per cent jump from the previous year.
“Banks have turned customers into easy prey,” said financial reform advocate Dr. Bruno Agbakoba. Consumer advocate Mrs. Toun Adeniran added that households and SMEs are being “drained by unexplained deductions.” A former CBN official admitted enforcement is “a challenge” despite sanctions.In the words of one customer, Nigeria’s banking system has become “a pain in the neck” profitable for lenders, but punishing for households and enterprises struggling to survive in a hostile economic environment.
Critics also warn that this reliance on “blood profits” discourages innovation and credit expansion, further widening the gap between banks’ fortunes and the struggles of businesses and households. Michael Owhoko, a Public Policy Analyst, warned that instead of boosting their image, the massive profits of Nigerian banks are fueling negative public perception, as many views their practices as harmful to individuals and especially small and medium businesses.
Why Banks Are Quietly Rationing Liquidity
Towards month ends, Nigerians are been frustrated by stalled online transfers, frozen mobile apps, and endless queues at ATMs and banking halls. While banks blame “network issues,” analysts say the real problem runs deeper.
With naira devaluation, inflation, and the CBN’s tight monetary stance squeezing liquidity, banks are quietly restricting access to cash to stabilise their books. “When banks throttle withdrawals or delay digital transactions, it is often a survival tactic,” a Lagos-based analyst explained, noting that recapitalization pressures have worsened the strain.
The CBN’s new recapitalisation directive has raised minimum capital thresholds for banks, forcing many institutions to restructure their balance sheets. With dividend payouts curtailed and fresh capital requirements looming, banks are under immense pressure to conserve every naira they can. Restricting customer access through “network downtimes” has quietly become one of the industry’s unspoken strategies.
Banks Race to Meet New Capital Thresholds
With inflation and naira depreciation eroding the old capital base, the CBN has raised minimum capital requirements: N500billion for international banks, N200billion for national banks, N50billion for regional and merchant banks, and N20billion and N10billion for national and regional non-interest lenders respectively. All banks must comply by April 2026.
So far, nine (9) banks: including Access Holdings, Zenith Bank, Stanbic IBTC, Wema Bank, Lotus Bank, Jaiz Bank, Providus Bank, Greenwich Merchant Bank and GTBank have met the target. FirstBank’s oversubscribed rights issue brought in N187.6billion, with a N350billion private placement underway. GTBank recently surpassed the benchmark after a N365.85billion rights issue, raising its capital to N504billion.
Mid-tier lenders such as FCMB and Fidelity Bank are still raising funds, though analysts expect them to succeed given strong investor appetite. Fitch Ratings noted that most banks are likely to meet the new thresholds ahead of deadline.
While the policy aims to fortify Nigeria’s banking system against shocks, it has exposed the contradiction between glossy profit declarations and actual capital adequacy. If profits were as robust as reported, banks would not be racing to the capital market or wooing investors for fresh injections.
Dividend and Bonus Restrictions
To compound matters, the CBN recently restricted dividend payouts and executive bonuses. This move, while unpopular among shareholders, underscores the regulator’s concern that banks are not retaining enough earnings to build capital buffers.
This temporary suspension, according to the CBN, is part of a broader strategy to reinforce capital buffers, improve balance sheet resilience, and ensure prudent capital retention within the banking sector.
Meanwhile, Nigerian banks paid a record N951billion in dividends to shareholders in 2024, representing an 87Per cent increase from the previous year.
For investors, it has been a rude awakening. Shareholders were promised juicy returns based on the record profits, but now the CBN is saying those same banks can’t afford to pay dividends. Something doesn’t add up.
Shadows of Creative Accounting in Banking Sector
Allegations of creative accounting continue to dog Nigeria’s banking sector, with analysts warning that dazzling profit numbers may not always reflect underlying reality. While not all institutions engage in such practices, the structural weaknesses of the financial system create room for manipulation.
“The financial sector regularly distorts earnings through creative accounting,” warns Bolatito Bickersteth of research firm Stears. “A significant portion of profit often lies in non-cash items, making true viability difficult to assess.”
One common tactic is the smoothing of earnings through frontloading expenses or deferring liabilities. Provisions for bad loans, for instance, are sometimes delayed, making banks appear healthier than they are. Similarly, loan books are often overstated, with risky credits classified as performing or backed by inflated collateral. This practice was central to the 2009 banking crisis that forced the Central Bank of Nigeria to sack several CEOs. Mercy Okon, Investment Research Specialist at Parthian Securities, emphasizes the systemic impact, “Huge profits seen in banks were due to unrealized FX gains, heightened interest income, and boosted transaction fees, not necessarily loan growth or real sector lending.”
Another area of concern is tax arbitrage, where lenders exploit gaps between tax rules and CBN guidelines to minimize taxable profits. Beyond that, some institutions reportedly use subsidiaries and offshore accounts to mask losses or inflate revenues, creating balance sheets that look stronger than reality.
Experts also fault the country’s weak auditing culture. Many banks rely on local audit firms with close management ties, raising doubts about independence and compliance with global reporting standards. As a result, governance lapses often escape scrutiny until crises erupt.
The big irony, analysts note, is that while Nigerian banks are declaring record profits, they are simultaneously racing to raise fresh capital under the CBN’s recapitalisation directive.
This contradiction, underscores the distortions created by weak oversight and questionable accounting practices.
The Public Illusion of Prosperity
The paradox points to a deeper credibility gap in Nigeria’s corporate financial reporting. To the public, banks appear prosperous, yet in reality, they are thinly capitalized and vulnerable to systemic shocks.
The irony is not lost on Nigerians who endure soaring lending rates, endless bank charges, and poor service delivery, only to be told that their banks are both profit-rich and capital-poor at the same time.
Way Forward:
To restore trust in Nigeria’s banking sector, regulators must enforce stricter consumer protection policies and closely monitor arbitrary charges. Agencies like the FCCPC and NGOs should actively safeguard customer interests, while the CBN ensures fair pricing and balance between lending and savings rates. Some existing policies driving excessive fees need urgent review to avoid discouraging use of banking services and undermining the cashless policy, especially in an underbanked society. Banks, on their part, must prioritize transparency, empathy, and integrity to rebuild reputation, while tighter financial disclosures, stronger corporate governance, and truly independent audits are essential for sustainable growth.
The recapitalization drive is long overdue, especially given the rising risks from a fragile economy, dollar shortages, and exposure to sovereign debt. However, unless transparency improves in financial reporting, the cycle of bogus profits and weak fundamentals will persist.
The recapitalization process should be paired with reforms in disclosure standards and stricter audit independence to ensure that profit figures reflect genuine financial strength.
Until then, the paradox remains: Nigerian banks that claim to be “rolling in profits” are the same institutions struggling to muster the funds needed to secure their future.
Blaise, a journalist and PR professional writes from Lagos, can be reached via: blaise.udunze@gmail.com
