Manufacturers Cut Bank Borrowing Amid High Interest Rates, Shift to Cheaper Financing Options

Nigeria’s manufacturing sector has sharply reduced its reliance on bank loans as high lending rates continue to squeeze operations. Financial statements for the first nine months of 2025 (9M’25) show that leading manufacturers slashed their combined bank borrowings by 20.3%, down to N2.014 trillion from N2.526 trillion recorded in the same period of 2024.

A detailed review by Financial Vanguard indicates that many firms are increasingly turning to equity financing, corporate bonds, commercial papers, and retained earnings to fund operations—moving away from expensive bank credit.

This strategic shift has significantly reshaped their financial position. Aggregate finance costs dropped by 52.8%, falling from N1.4 trillion in 9M’24 to N662 billion in 9M’25. Meanwhile, combined turnover surged 37.9% to N10.1 trillion, compared to N7.3 trillion a year earlier. Profitability also rebounded sharply: manufacturers posted N2.5 trillion profit, a dramatic turnaround from a N116 billion loss in 2024.

However, the cost of sales climbed 57.9% to N5.7 trillion, reflecting ongoing inflation in input materials.

Borrowing Breakdown

• BUA Foods: N1.105trn (down from N1.559trn)
• Nestlé Nigeria: N521.01bn (from N653.70bn)
• Nigerian Breweries: N162.17bn (from N204.17bn)
• Unilever Nigeria: N2.2bn (from N2.8bn)
• NASCON Allied: N67m (from N3.3bn — 98% drop)
• Lafarge Africa: N1.72bn (from N2.214bn)
• Fidson Pharmaceuticals: N12.27bn (from N8.979bn – up 36.7%)
• Vitafoam: N13.99bn (from N7.8bn)
• Okomu Oil: N5.57bn (from N7.1bn)
• Presco Oil: N159.8bn (from N46.5bn)
• Cadbury: N27.97bn (from N31.2bn)

Major manufacturers—including Dangote Cement, Dangote Sugar, Guinness, International Breweries, and Champion Breweries—took no new loans, reflecting a broad retreat from high-interest credit.

Finance Costs Drop Sharply

Companies recorded major declines in financing expenses:

• Nestlé: N55.2bn (from N369.2bn)
• Nigerian Breweries: N39.2bn (from N72bn)
• BUA Foods: N11.9bn (from N21.7bn)
• Dangote Sugar: N95.6bn (from N300.2bn)
• International Breweries: N7.2bn (from N29.15bn)
• Lafarge: N3.65bn (from N5.396bn)
• Guinness: N109.7bn (from N120.851bn)

Experts Weigh In

Analysts say the high-interest-rate environment has severely dampened credit appetite, forcing companies to seek cheaper alternatives.

David Adonri, Vice Chairman, HighCap Securities, explained:
“Although the benchmark rate has declined slightly, it hasn’t brought down lending rates materially. As borrowers shun bank credit and risk-free yields reduce, banks’ income may fall below investors’ expectations.”

He added that inflation-driven price adjustments helped firms rebuild margins despite rising input costs.

Dr. Muda Yusuf, CEO of CPPE, linked the fall in borrowing to persistently high lending rates:
“Businesses are cautious about incurring huge financing costs in an economy with weak purchasing power. Many firms have turned to commercial papers and equity funding.”

Yusuf also noted that improved FX liquidity contributed to the profit rebound.

Tajudeen Olayinka, banker and stockbroker, said the drop in bank borrowing reflects prudence, not risk:
“A 20.3% fall doesn’t threaten the economy. It shows firms are avoiding today’s high rates because they expect cheaper credit ahead.”

Clifford Egbomeade, public analyst, called the borrowing reduction a rational response to the CBN’s tight monetary stance:
“With lending rates above 30%, working-capital borrowing became prohibitive. Firms deleveraged to avoid crippling finance costs.”

Implications for Banks and Policy

Experts warn that manufacturers’ exit from bank credit could squeeze banks’ loan books and deepen the disconnect between the financial system and the real sector.

Targeted financing support—through institutions like the Bank of Industry—may be needed to bridge the gap.

Outlook for the Sector

Although profitability and turnover are rising, analysts describe the recovery as fragile, citing ongoing inflation, high energy costs, and infrastructure constraints.

Still, improved FX stability, reduced finance costs, and early signs of monetary easing suggest better prospects for 2026.

“The fundamentals are improving… If credit channels are revived, 2026 could consolidate this recovery,” Yusuf said.

Opinion Nigeria News