S&P Global Ratings has projected a cautiously resilient outlook for Nigeria’s banking sector in 2026, forecasting a marginal decline in profitability as the industry transitions from recent windfall gains to a more stable operating environment.

The global ratings agency made the projection during a webinar held on March 5 titled “Africa’s 2026 Credit Cycle Dynamics.” It noted that the period of extraordinary foreign exchange gains and exceptionally high interest margins enjoyed by Nigerian banks in recent years is gradually giving way to a model driven more by digital transaction volumes and stronger capital buffers.

According to S&P, the sector is entering a phase of “normalization,” with banks shifting attention from aggressive dividend payouts toward strengthening capital and absorbing potential credit losses ahead of the March 31, recapitalisation deadline, set by the Central Bank of Nigeria (CBN).

The agency projected that banks’ Return on Equity (ROE) could decline from an estimated 25 per cent in 2025 to between 20 per cent and 23 per cent in 2026.

The expected decline is partly linked to easing inflation and the possibility of interest rate cuts by the central bank after a prolonged period of monetary tightening. Lower interest rates are expected to compress Net Interest Margins (NIMs), which have been the main driver of bank earnings over the past two years.

However, the agency noted that lenders are increasingly turning to non-interest income to support profitability. Fees and commissions from electronic payments are emerging as a key revenue stream, especially as transaction volumes continue to rise. In 2024 alone, the value of e-payment transactions grew by about 78 percent, underscoring the growing importance of digital banking services.

Operating costs remain elevated, however, partly due to the Asset Management Corporation of Nigeria (AMCON) levy, which is set at 0.5 percent of banks’ assets. S&P estimates that the levy accounts for between 15 percent and 20 percent of total operating expenses for many banks.

The report also highlighted growing concerns over asset quality within the banking system, particularly after regulatory forbearance on certain oil and gas loans expired in late 2025.

As a result, non-performing loan (NPL) ratios rose to about 7 percent in 2025, exceeding the regulatory threshold of 5 percent. The increase was largely driven by the reclassification of several “Stage 2” loans that had previously been shielded under pandemic-era relief measures.

S&P noted that the banking sector remains significantly exposed to the oil and gas industry, with roughly one-third of total loans linked to the hydrocarbon sector. While crude oil prices above $80 per barrel provide some support for borrowers, the loans remain vulnerable to sudden shifts in global energy demand.

Currency risk is also a concern, with about half of bank loans denominated in foreign currency. Any unexpected volatility in the naira could quickly increase impairment charges for borrowers without adequate foreign exchange hedging.

Meanwhile, the ongoing banking sector recapitalisation programme is expected to reshape the industry’s capital structure.

Under the new CBN policy, international banks must raise their minimum paid-up capital to ₦500 billion, while national and regional banks are required to meet thresholds of ₦200 billion and ₦50 billion respectively.

S&P said that as of late February 2026, about 20 of the country’s 33 deposit money banks had already met the new capital requirements. The remaining large lenders are expected to comply through rights issues, private placements, and other capital-raising measures.

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