Nigerian Banks Lead Africa's Net Interest Margin Expansion to 6.2% as Profitability Returns
African banks recorded net interest margins of 6.2% in 2025, up from 5.7% the previous year, driven primarily by Nigerian institutions capitalizing on high-rate environments, according to Fitch Ratings. The improved profitability is enabling firms like Nestlé Nigeria to resume dividend payments after multi-year suspensions.
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Nigerian banking institutions have emerged as the primary drivers of expanding net interest margins across Africa's financial sector, pushing the continental average to 6.2 percent in 2025 from 5.7 percent in 2024, according to a recent report by Fitch Ratings. The performance marks a notable divergence from global trends, where most emerging market regions experienced margin compression during the same period.
"Average NIMs declined slightly in most regions, but increased for African banks to 6.2 per cent (2024: 5.7 per cent), mostly due to banks in Nigeria," Fitch noted in its emerging markets banking analysis. The 50-basis-point expansion represents the strongest net interest margin growth among developing market banking systems globally, underscoring Nigeria's outsized influence on continental financial performance metrics.
The margin expansion reflects Nigerian banks' ability to capitalize on elevated interest rate environments following the Central Bank of Nigeria's aggressive monetary tightening cycle. The CBN raised its benchmark rate by 875 basis points through 2024-2025, reaching 27.5 percent by February 2025, creating substantial opportunities for deposit-taking institutions to widen spreads between lending and funding costs. Nigerian banks have leveraged their dominant retail deposit franchises to maintain relatively stable funding costs while repricing loan portfolios upward in line with policy rate adjustments.
Major Nigerian banking groups including Access Holdings, Zenith Bank, and United Bank for Africa reported double-digit growth in interest income during their most recent financial disclosures. The sector's aggregate interest income expanded by approximately 35 percent year-on-year in 2024, according to data compiled from Nigerian Stock Exchange filings, with net interest margins for tier-one banks averaging between 7.8 and 9.2 percent—substantially above the African average.
The improved profitability environment is enabling broader corporate dividend resumptions across Nigeria's financial and consumer sectors. Nestlé Nigeria Plc announced it is looking to resume dividend payments "soon," according to Business Day, marking the first distribution in three years following a return to profitability. The food and beverage manufacturer had suspended shareholder payouts amid margin pressures from naira devaluation, input cost inflation, and weakened consumer purchasing power that characterized Nigeria's economic turbulence through 2022-2024.
Nestlé Nigeria's anticipated dividend resumption signals improving operating conditions for consumer-facing corporations as inflation moderates from its October 2024 peak of 34.6 percent. The company's path back to profitability mirrors broader trends among Nigerian corporates that have successfully navigated currency adjustments, with the naira stabilizing around 1,550-1,650 per US dollar following the CBN's market-based exchange rate reforms implemented in June 2023.
Financial analysts note that sustained net interest margin expansion depends on Nigeria's inflation trajectory and monetary policy stance. While headline inflation has declined to 29.8 percent as of January 2025, core inflation remains elevated at 26.4 percent, suggesting the CBN may maintain restrictive policy rates through mid-2025. This environment would continue supporting bank profitability through elevated lending yields, though it may constrain credit growth as borrowing costs remain prohibitive for many corporate and retail customers.
The banking sector's performance contrast with other African markets is striking. South African banks reported net interest margins averaging 4.2 percent in 2024, while Kenyan institutions recorded 7.8 percent amid their own high-rate environment following CBK rate increases. However, Nigerian banks' scale—with the top six institutions holding combined assets exceeding $180 billion—gives them disproportionate weight in continental aggregates.
Asset quality remains a monitoring point for Nigerian banks despite strong margin performance. Non-performing loan ratios increased modestly to 5.1 percent sector-wide by December 2024 from 4.8 percent the previous year, according to CBN data, as some borrowers struggled with debt servicing amid high rates. Provisioning expenses rose correspondingly, though robust interest income growth has more than offset credit costs for most institutions.
Looking forward, the sustainability of margin expansion will depend on Nigeria's macroeconomic stabilization and potential policy rate cuts. Market participants anticipate the CBN may begin easing monetary policy in the second half of 2025 if inflation continues its downward trajectory, which would compress margins but potentially stimulate loan growth. For now, Nigerian banks remain positioned as the primary profit engines for Africa's banking sector, with their performance increasingly decoupling from subdued economic growth rates that continue to challenge the broader continental economy.