By Blaise Udunze

In a year when Nigeria’s economy continues to groan under the weight of inflation, unemployment, and weak purchasing power, the banking sector has once again recorded a massive windfall, not from lending to the real economy or financing innovation, but from investing in government securities.

According to data compiled by MoneyCentral, Nigerian Tier-1 banks collectively realized N5.05 trillion in income from investment securities in the first nine months of 2025 represents a staggering 42.28 percent increase over the N3.55 trillion recorded in the same period of 2024.

At first glance, this performance might seem like a testament to the banking industry’s resilience and financial ingenuity. But beneath the lustrous profit sheets lies a deeper economic dilemma that reveals how Nigeria’s banks are making more money by lending to government than by lending to people, small businesses, and industries which are the very arteries that sustain productive economic life.

It is no secret that Nigeria’s commercial banks have long found comfort in the safe, predictable yields of government securities such as treasury bills, bonds, and promissory notes. These instruments are virtually risk-free, backed by sovereign guarantees, and often deliver attractive returns in a high-interest-rate environment. For the banks, it is a perfect business model where depositors’ funds flow in at low cost, and those funds are easily parked in high-yield government paper with minimal risk or operational hassle. There is no need to worry about non-performing loans, credit analysis, or the painstaking process of supporting small and medium enterprises (SMEs).

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But for the economy, it is a tragedy of misaligned priorities. While the banks luxuriate in “safe profits,” the productive sectors like agriculture, manufacturing, transport, housing, and creative industries remain starved of credit. Nigeria’s SMEs, which account for over 80 percent of employment and nearly half of GDP, face prohibitive interest rates, limited access to capital, and chronic underfunding. The result is economic stagnation disguised as stability.

The data below tells the story clearly:

– Zenith Bank realized N1.14 trillion from income from short-term government securities, which is 55.49 percent higher than 2024’s N734.14 billion.

– Access Bank made N1.13 trillion income from investment securities as at September 2025 which is 36 percent higher than 2024’s N838.14 billion.

– GTCO realized N547.77 billion income from government bonds, which is 45.68 percent higher than 2024’s N376 billion.

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– United Bank for Africa (UBA) saw its income from short-term government securities rise 29.77 percent to N973.12 billion in the period under review, up from N750.48 billion the previous year.

– FirstHoldco’s income from investment securities increased 33.70 percent to N720.15 billion in September 2025, from N538.59 billion in September 2024.

Collectively, these numbers paint a clear picture of the real economy struggling to breathe, while the financial sector is growing fat on sovereign debt. This is not banking as development finance; it is banking as arbitrage. And the scale of this investment obsession is enormous. In the past teo years alone, the top 10 listed banks have channeled at least N20.4 trillion into investment securities and this huge capital could have financed millions of jobs, supported thousands of small businesses, and accelerated growth in Nigeria’s productive sectors.

This has now caught the attention of Nigeria’s tax authorities. The Federal Inland Revenue Service (FIRS) recently directed banks, stockbrokers, and other financial institutions to deduct a 10 percent withholding tax on interest earned from investments in short-term securities. Prior to this directive, short-term bills were tax-exempt to boost returns for investors. The new rule requires tax to be deducted at the point of payment on instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange.

It remains unclear how much the government expects to generate from this withholding tax. However, the FIRS clarified that investors will receive tax credits for the amounts withheld unless the deduction represents a final tax. Notably, interest on federal government bonds remains exempt from the levy. “All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law,” FIRS Executive Chairman Zacch Adedeji said in the official notice.

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Yield-hungry investors including banks are likely to be the most affected by this directive. In the first half of 2025 alone, Nigeria’s biggest banks realized N3.03 trillion in income from treasury bills, which represents a 60.40 percent increase from N1.89 trillion recorded in the corresponding period of 2024. GTCO, Zenith Bank Plc, United Bank for Africa Plc, Access Holdings Plc, FirstHoldco Plc, FCMB Plc, Fidelity Bank Plc, and Stanbic IBTC Holdings Plc have been in the habit of buying up domestic government bonds that offer among the highest yields in emerging markets.

By introducing this withholding tax, the FIRS aims to reduce excessive speculative investment in short-term securities and redirect liquidity into more productive parts of the economy. Whether this policy shift achieves that goal remains to be seen. In theory, taxing government securities could make lending to the private sector relatively more attractive. In practice, unless accompanied by broader structural reforms such as reducing credit risk, improving collateral enforcement, and stabilizing the macroeconomic environment, banks may simply adjust their margins and continue business as usual.

Nigeria is witnessing a growing disconnect between financial growth and economic growth. On one side is the booming financial economy, driven by banks’ trading gains, FX revaluation, and investment returns. On the other side is the struggling real economy, where factories close, youth unemployment rises, and SMEs collapse under the weight of credit starvation. The banks’ balance sheets may glitter, but the nation’s balance of welfare is grim.

As inflation eased slightly to 18.02 percent in September 2025, the Central Bank of Nigeria (CBN) cut the Monetary Policy Rate (MPR) from 27.5 percent to 27 percent. While this move signals a dovish tone, it does little to change the fact that the cost of credit remains astronomically high. Commercial lending rates hover between 25 percent and 35 percent, which is completely out of reach for most small businesses. Meanwhile, banks can earn double-digit, risk-free returns on treasury bills. Faced with that choice, which banker would lend to a farmer or manufacturer?

Beyond the figures, this trend has human consequences. Every SME denied a loan represents jobs not created, taxes not paid, and innovations never realized. Every startup that shuts down for lack of funding represents a family’s dashed hopes. Every manufacturer operating below capacity because of working capital shortages translates into lost exports and higher import dependence. When banks turn away from development finance, the ripple effect touches every household ranging from the market woman running a petty trade to the tech entrepreneurs across the country.

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Several factors explain why banks prefer the comfort of government securities to the challenge of real-sector lending. Many SMEs operate informally, without proper records or collateral, making them unattractive to traditional lenders. Nigeria’s judicial system often makes loan recovery slow and uncertain, discouraging risk-taking. Exchange rate instability and inflation distort business forecasts, making long-term lending risky. Banks also find it easier to meet liquidity and capital adequacy ratios by holding government paper. Executive bonuses and performance metrics are tied to quarterly profits, not long-term economic impact. These factors form an entrenched ecosystem of incentives that rewards speculation over production, in a system where financial stability comes at the cost of real growth.

If Nigeria must break free from this cycle, a paradigm shift is needed, one that redefines the purpose of banking in national development. The CBN and fiscal authorities must create differentiated incentives for banks that channel a higher percentage of their loan portfolio to productive sectors such as agriculture, manufacturing, renewable energy, and technology. Tax rebates, lower cash reserve ratios, or credit guarantees can help de-risk these loans. Nigeria’s collateral registry, credit bureaus, and bankruptcy laws need modernization to reduce perceived risk, while the legal system must guarantee faster resolution of credit disputes.

Government, through the Bank of Industry (BOI) or similar agencies, can establish a blended-finance vehicle that matches public capital with private lending, allowing banks to co-finance SME projects with shared risk. Many small businesses fail to access credit because they lack proper documentation or business plans. A coordinated financial literacy program, supported by banks and chambers of commerce, could improve their readiness for formal credit. Ultimately, change must come from the top. Bank CEOs and boards must see themselves not just as profit managers but as nation builders. The sustainability of their profits depends on the health of the economy that surrounds them.

If this imbalance persists, Nigeria risks becoming a country where banks thrive and industries die. The long-term cost is profound. Economic growth will remain consumption-driven rather than production-led. Unemployment will worsen as SMEs fold up. Government borrowing will continue to crowd out private investment. The naira will weaken due to import dependence and weak export diversification. Financial capitalism, without developmental conscience, will only deepen inequality and discontent.

The time has come for Nigeria’s banking industry, regulators, and policymakers to make a collective choice: between easy profits and enduring prosperity. It is not enough to celebrate trillion-naira incomes if the nation remains trapped in jobless growth. It is not enough to report record balance sheets while millions of Nigerians remain unbanked and unemployed. True financial innovation lies not in exploiting yields, but in empowering people. The banks that will define the next decade are those that look beyond treasury bills, especially those that find value in the dreams of Nigerian entrepreneurs, in the resilience of its farmers, and in the creativity of its youth.

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The story of Nigeria’s N5.05 trillion securities income is not just about numbers; it is about choices and their consequences. It reveals a financial system that has lost sight of its developmental mission, a government too dependent on debt, and an economy where growth has become disjointed from human progress. Yet, it is not too late to change course. The recent 10 percent tax on short-term securities should be the first step toward a deeper reform as one that forces a reallocation of capital from paper to people, from speculation to production.

As yields fall and monetary policy adjusts, the smart banks will be those that read the writing on the wall knowing that the future of finance in Nigeria lies not in government debt, but in the real economy because it is the only economy that truly matters. Because in the end, a nation cannot prosper when its banks are rich and its people are poor.

Blaise, a journalist and PR professional writes from Lagos, can be reached via: [email protected]