In a stark illustration of the punishing interest rate environment facing Nigeria’s non-bank financial institutions, DLM Capital Group has seen its cost of funds surge to 31%.
The spike, recorded in the wake of the Central Bank of Nigeria’s (CBN) aggressive monetary tightening, highlighted a deepening liquidity squeeze within the investment banking and asset management sector.
DLM is largely funded by purchased deposits and commercial papers issued in the debt capital market.
The group’s funding base increased by 24.4% to N45.4 billion as of 30 September 2025 (31 December 2024: N36.4 billion; 31 December 2023: N28.0 billion), reflecting consistent growth.
“However, liquidity was strained, with the GCR liquid assets to customer’s deposits and GCR liquid assets to total wholesale funding registering at 29.7% and 0.4x respectively as of 31 December 2024 (December 2023: 56.7% and 2.4x),” GCR Ratings said in its latest note.
“This was coupled with a slight increase in cost of funds to 19.1% in 2024 (2023: 18.0%). Nonetheless, we acknowledge the improvement in liquidity as GCR liquid assets to customer’s deposits and GCR liquid assets to total wholesale funding registered at 39.7% and 0.9x respectively as of 30 September 2025 but cost of funds remained heightened at 31.9%.”
The 31% Hurdle: A High Price for Capital
The jump to a 31% cost of funds reflects the “premium” that mid-tier investment houses must now pay to attract and retain institutional and retail deposits:
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Market Competition: With the CBN’s Monetary Policy Rate (MPR) and Treasury Bill yields hovering at historic highs, DLM Capital is forced to offer competitive, double-digit returns on its commercial papers and investment notes to prevent capital flight to sovereign instruments.
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Liquidity Premium: The 31% rate suggests a “liquidity crunch” where the cost of borrowing from the interbank market or private investors has outpaced the group’s ability to reprice its own loan assets, creating a dangerous “margin squeeze.”
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Funding Mix: A heavy reliance on short-term wholesale funding rather than low-cost retail deposits has made DLM particularly vulnerable to the rapid upward shift in the yield curve.
DLM is a diversified financial services group with operations in asset management, microfinance banking, securities trading, advisory, FX trading, corporate finance and trusteeship.
The group’s relatively low market share, with assets under management (AUM) and loan book size registering at less than 1% of the industry, coupled with lower operating revenues relative to peers, underpin its modest competitive position.
DLM’s capital and leverage ratio has been pressured over the past months underscored by a modest growth in assets relative to shareholder’s equity.
Consequently, the GCR financial leverage ratio (measured as GCR core capital to total on-balance sheet assets less cash) moderated to 22.7% as of 31 December 2024 (31 December 2023: 36.8%).
The group’s loan portfolio quality remained stable with the non-performing loan (NPL) ratio and credit loss ratio registering at 1.8% and 2.3% respectively as of 31 December 2024.
Loan loss reserve coverage of non-performing loans was sufficient at 348.1% as of 31 December 2024 (December 2023: 550.3%) and collateral cover for the loan book remains adequate.
However, obligor concentration exists in the loan portfolio, with the top 20 largest exposures accounting for 50% of gross loans and advances as of 31 December 2024, largely consisting of the structured finance facilities is an offsetting risk.
“Over the rating horizon, we expect significant improvement in DLM’s liquidity coverage ratios and funding base in terms of diversity of funding sources and cost of funds,” GCR said.
“The sustainability assessment is neutral to the rating; however, we note the influence of the Group Chief Executive Officer, who is also the major shareholder and chairs the boards of subsidiaries. Nevertheless, the group’s board comprises six people, four of whom are independent directors, potentially mitigating the risk of overbearing influence.”
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