S&P Forecasts Stronger Credit, Stable Profit For Nigerian Banks In 2026

Nigerian banks are expected to post stronger credit growth in 2026 while retaining positive profitability, despite mounting regulatory and asset quality pressures, according to a new outlook by S&P Global Ratings.

In its Nigerian Banking Outlook 2026, S&P said improved lending to key sectors of the economy alongside resilient non-interest income would help banks absorb the impact of regulatory headwinds and easing interest rates.

The ratings agency projected credit growth of between 20 and 25 per cent in 2026, driven largely by increased investments in oil and gas, agriculture and manufacturing. It added that the outlook for lending was supported by expectations of moderating inflation and gradual monetary easing, following recent interest rate cuts by the Central Bank of Nigeria.

“We expect credit growth of about 20-25 per cent supported by investments in the oil and gas, agriculture, and manufacturing sectors. Although interest rates have started to decrease, profitability should stay resilient in 2026, supported by growth in non-interest income (NII) and lower provisions.

“We expect Nigerian banks to prove resilient and capable of preserving their profitability in 2026,” S&P said, noting that earnings would be supported by transaction driven fees, commissions and a still elevated cost of risk, even as margins come under pressure.

S&P noted further that it expects nominal lending growth to remain high at about 25 per cent, supported largely by investments in the oil and gas sector, agriculture and manufacturing. While interest rates are expected to decline further in 2026, S&P said Nigerian banks would continue to benefit from rates that remain high relative to peers, supporting net interest margins.

However, it forecast a moderation in profitability, with average return on equity expected to ease to between 20 and 23 per cent in 2026, compared with an estimated 25 per cent in 2025. “Although interest rates have started to decline, we expect rates to remain high relative to peers, which will continue to support banks’ net interest margins through 2026.

“We forecast the average return on equity (ROE) will normalise at 20-23 per cent in 2026 compared to 25 per cent estimated for 2025, while return on assets will decline marginally to 3.0-3.1 per cent from an estimated 3.3 per cent in 2025. Profitability will be supported by still high interest margins, growing NII, and slightly lower provisions, while capital issuance will increase the equity base leading to a lower ROE.

“Although interest rates have started to decline, we expect rates to be high relative to peers, which will continue to support the banks’ net interest margins through 2026. We forecast an average margin drop of about 50bps to 100bps in 2026, as banks’ margins will continue to benefit from higher yields on government securities and large recourse to low-cost customer deposits.”

Beyond this S&P said it expects the “nexus between banks and sovereign risks to slightly moderate as lending gradually increases targeting real sectors of the economy and as fiscal deficits narrow and economic conditions improve.”

This is as it noted that “banks’ share of government securities has been increasing in recent years due to limited credit extension and now accounts for about 11 per cent of the bank’s total assets. The growing exposure increases its vulnerability to sovereign-related shocks.”

On asset quality, the ratings firm acknowledged elevated risks following the removal of regulatory forbearance on several oil and gas loans in mid-2025. Non-performing loans rose sharply last year and are expected to remain high in 2026.

“We expect the NPL ratio to stabilise at about 6 to 7 percent in 2026,” S&P said, citing lingering weakness in some restructured oil and gas exposures and the sector’s vulnerability to oil price swings.

S&P however, expressed confidence that stronger capital buffers would help banks withstand potential shocks. It said most rated banks had already met the new paid up capital requirements ahead of the March 2026 deadline, following extensive capital raising exercises in 2025.

“To date, rated banks have collectively raised about N2.3 trillion in capital, and nine out of the 10 rated commercial banks already meet the new requirements for their respective licences,” the report said.

According to S&P, the higher capital base would strengthen loss absorption capacity and help banks remain above regulatory minimums under the Basel II framework, even as earnings normalise. “Out of the 10 rated commercial banks which make up about 80 per cent of system assets, nine already meet the new requirements for their respective licenses.

“We anticipate that some smaller banks may explore options such as mergers or business model adjustments to ensure compliance with the new capital requirements. The increase in capitalization will support banks’ loss absorption capacity.

“Most Nigerian banks continue to meet their regulatory capital requirements under the Basel II framework with strong buffers above regulatory minimums. We expect banks to continue to meet their regulatory minimum over the next 12 months supported by earnings and the capital raise.”