Experts cautions against idle deposits as banks grow investment securities to N41.7trn
In the first quarter of 2025, eight major Nigerian banks, including Access Holdings, Zenith Bank, and United Bank for Africa (UBA), collectively increased their investment securities to N41.78 trillion, a 1.65% rise from N41.10 trillion in December 2024. This shift reflects a broader trend where banks are focusing on low-risk, high-return instruments, such as treasury bills, bonds, and commercial papers. Experts caution that this shift may result in banks crowding out credit to the private sector, leading to a slowdown in economic activity.
Economist Vincent Nwani highlighted the growing concern over idle deposits in banks, urging depositors to take more control of their finances. Nwani explained that as banks use depositors’ funds to invest in low-risk instruments, investors miss opportunities to earn returns from their own money. He noted that the focus of Nigerian banks has shifted from lending to the private sector to prioritizing returns from government-backed securities.
This trend is evident in the financial statements of prominent banks like UBA, which saw its investment securities grow from N12.53 trillion to N13.13 trillion in March 2025. Ecobank and GTCO also reported significant increases, with Ecobank’s securities rising from N10.68 trillion to N11.01 trillion, while GTCO saw an increase from N4.15 trillion to N4.62 trillion. Other banks, such as Wema Bank and Zenith Bank, also reported substantial growth in their investment securities.
The growing preference for government-backed securities has been attributed to their high coupon rates and minimal risk of default, making them more attractive than lending to the private sector. Teslim Shitta-Bey, Chief Economist at Proshare, explained that while higher interest rates are a sign of elevated default risks, they also make government securities a safer investment. As a result, banks are opting for these low-risk options to protect their liquidity.
However, this cautious approach has led to a significant slowdown in credit growth to the private sector. Analysts predict that credit growth will remain sluggish as banks prioritize profitability from investments over their traditional lending role. This shift poses a challenge to the broader Nigerian economy, which depends on credit for growth and development in key sectors.
Source: The Sun