Manufacturers Cut Bank Loans, Slash Finance Costs as High Interest Rates Reshape Funding Choices
The latest financial disclosures from Nigeria’s major manufacturing companies reveal a decisive turn in their funding strategies, driven largely by the prolonged high-interest-rate environment. Instead of relying heavily on commercial bank credit, many firms have pivoted to cheaper alternatives—equity, corporate bonds and retained earnings—significantly altering their balance-sheet profiles.
Over the first nine months of 2025, manufacturers collectively reduced their bank borrowings by 20.3 per cent, bringing total loans down to N2.014 trillion, compared with N2.526 trillion in the same period of 2024. This retrenchment from bank credit comes at a time when benchmark lending rates remain elevated, leaving working-capital loans costly and, in many cases, impractical.
The shift has produced immediate financial relief. Aggregate finance costs for leading manufacturers fell sharply by 52.8 per cent, dropping from N1.4 trillion a year earlier to N662 billion in 9M’25. At the same time, sector-wide turnover climbed to N10.1 trillion, a 37.9 per cent increase from the previous year, while profits rebounded decisively—swinging from a N116 billion loss in 2024 to a N2.5 trillion profit in 2025. Even so, cost of sales rose by nearly 58 per cent, underscoring the persistence of input-driven inflation.
Borrowing Patterns Across Firms
The deleveraging trend was led by BUA Foods, which trimmed its loan book to N1.105 trillion from N1.559 trillion. Nestlé Nigeria followed with a 20.3 per cent decline, while Nigerian Breweries cut borrowings by a similar margin. Several companies—including Dangote Cement, Dangote Sugar, Guinness, International Breweries and Champion Breweries—reported no new borrowings at all, signalling a strategic retreat from expensive credit markets.
Some firms posted even more dramatic adjustments. NASCON Allied, for instance, reduced its exposure by 98 per cent, while others such as Unilever, Lafarge Africa, Fidson Pharmaceuticals, Vitafoam, Okomu Oil, Presco and Cadbury also reported varying degrees of contraction in their loan profiles.
The Impact on Finance Costs
Manufacturers that pared back their loans reaped sizable declines in financing charges. Nestlé’s finance cost plunged from N369.2 billion to N55.2 billion, while Nigerian Breweries reduced theirs to N39.2 billion. Major players including BUA Foods, Dangote Sugar, NASCON, International Breweries, Lafarge and Guinness all posted significant reductions as well.
Analysts’ Perspectives: Why Borrowing Has Dropped
Financial experts attribute the shrinking appetite for credit to high lending rates and the elevated Monetary Policy Rate (MPR), which held at 27.5 per cent through mid-2025.
David Adonri of HighCap Securities argues that the trend reflects a migration toward non-bank funding sources and retained earnings as firms attempt to avoid prohibitive borrowing costs. He warns that as manufacturers pull back from credit, banks could see pressure on interest income, especially with risk-free yields also trending lower.
Dr. Muda Yusuf of the Centre for Promotion of Private Enterprise links the decline in borrowings to high rates in an economy with subdued purchasing power. According to him, the development suggests a troubling disconnect between banks and the real sector, potentially weakening the financial system’s intermediation role. However, he acknowledges that improved FX liquidity and economic stabilisation have supported the recent rebound in profitability.
Stockbroker and banker Tajudeen Olayinka sees the deleveraging as prudent rather than alarming, noting expectations of future rate cuts and improved macroeconomic stability, including a stronger naira. He points out that lower finance costs are a sign of better financial management across the industry.
Communications analyst Clifford Egbomeade describes the borrowing decline as a defensive measure under tight monetary policy, noting that working-capital loans priced above 30 per cent became unsustainable. He views much of the profit rebound as the result of deleveraging and FX stability rather than expanded production capacity.
Implications for Banks and Policymakers
Economists warn that if manufacturers continue to rely on non-bank funding, banks may face muted loan growth and may increasingly turn to government securities. The challenge for policymakers, they say, is finding ways to lower borrowing costs without reigniting inflation. Development-finance institutions, credit guarantees, and targeted long-term funding could help bridge the widening financing gap.
Outlook: Recovery with Caution
Although manufacturers are beginning to regain footing—with stronger profits, improved FX conditions and lower finance costs—the recovery is still described as fragile. High inflation, energy costs and infrastructure constraints continue to weigh on competitiveness.
Still, the sector appears more stable than in 2023–24, and analysts say consistent policy, stronger credit channels and ongoing macroeconomic stability could make 2026 a year of consolidation and renewed growth.