Since the liberalization of Nigeria’s banking sector, interest rate spreads have remained a significant issue. The interest rate spread is the difference between the rates charged on loans and the rates paid on deposits. In recent years, from 2023 to 2025, these spreads have increased sharply, reaching a record high of 19%, up from 6%.
This widening gap has far-reaching implications for the Nigerian economy, with potential impacts on key economic indicators and financial stability. High interest rate spreads can signal systemic inefficiencies, structural imbalances, and heightened risks within the banking system. When compared to regional and global banking institutions, Nigeria’s interest rate spreads are considered unusually wide, indicating intrinsic issues in the country’s financial sector.
Several factors contribute to these high spreads, including stringent monetary policies, a tight regulatory environment, and structural inefficiencies within the banking system. These conditions can hinder economic performance by making credit more expensive and limiting access to financing, especially for businesses and consumers. Low interest rate spreads, on the other hand, are indicative of a competitive, well-functioning financial system that fosters growth and stability.
To address these concerns, experts suggest a range of potential remedies and strategies aimed at reducing the interest rate spreads in Nigerian banks. These include improving regulatory frameworks, enhancing competition within the banking sector, and addressing systemic inefficiencies. By tackling these challenges, Nigeria can work towards creating a more stable and growth-oriented financial system.
As the country continues to grapple with these issues, finding ways to reduce the interest rate spread will be crucial for improving economic performance and promoting long-term financial stability.
