Authorities securities now account for about 11% of Nigerian banks’ whole belongings, reflecting years of constrained credit score extension and a desire for lower-risk sovereign devices, in accordance with a brand new banking sector outlook by S&P World.
The scores agency mentioned the rising publicity has elevated banks’ sensitivity to sovereign-related shocks, though this threat is predicted to ease progressively as lending to the actual financial system improves and macroeconomic situations stabilise.
In its Nigerian Banking Outlook for 2026, S&P World famous that regardless of regulatory headwinds, tighter capital necessities and easing rates of interest, Nigerian banks are anticipated to stay resilient and protect optimistic profitability over the medium time period.
What the scores agency says
- In its outlook, the scores agency mentioned, “Banks’ share of presidency securities has been rising in recent times as a consequence of restricted credit score extension and now accounts for about 11% of the bank’s whole belongings. The rising publicity will increase its vulnerability to sovereign-related shocks.
- “We anticipate the nexus between banks and sovereign dangers to barely average as lending progressively will increase, focusing on actual sectors of the financial system and as fiscal deficits slender and financial situations enhance.”
S&P World additionally initiatives Nigeria’s actual GDP development to common 3.7% over 2025–2026, supported by each oil and non-oil sector exercise.
Inflation is predicted to average progressively to round 21% in 2026, paving the best way for additional financial easing after the 50 foundation factors rate of interest lower carried out in September 2025.
Towards this backdrop, nominal credit score development is forecast at about 25%, pushed largely by elevated lending to the oil and fuel, agriculture, and manufacturing sectors.
The report famous that lending to the oil and fuel sector is predicted to assist larger manufacturing following measures to curb militancy and crude oil theft.
Retail lending, nonetheless, is projected to make solely a marginal contribution to total mortgage development as a consequence of its comparatively small share of banks’ portfolios.
Regardless of the headline development, S&P mentioned actual credit score growth would stay modest, reflecting excessive inflation and lingering structural constraints.
The report additionally highlighted the focus dangers inside banks’ mortgage books, with about 50% of loans denominated in overseas foreign money and roughly one-third of whole exposures linked to the oil and fuel sector.
As well as, round half of gross loans are concentrated among the many high 20 debtors, rising vulnerability to sector-specific and single-name shocks.
Nonperforming loans to stabilise at 7%
Asset high quality deteriorated in 2025 following the elimination of regulatory forbearance on oil and fuel sector exposures.
Nonperforming loans rose to about 7% in 2025 from 4.9% in 2024, as banks started recognising beforehand restructured or deferred drawback loans.
Whereas some establishments have written off affected exposures, others are nonetheless within the strategy of restructuring them.
S&P expects NPL ratios to stabilise at 6%–7% in 2026, assuming oil costs common round $60 per barrel, a degree thought-about enough to assist borrower solvency.
Stage 2 loans are additionally anticipated to stay elevated at about 20%–22%, reflecting ongoing credit score threat in restructured amenities.
S&P World forecasts that Nigerian banks’ profitability will decline barely in 2026 however stay sturdy by regional requirements.
Common return on fairness is projected to normalise to between 20% and 23% in 2026, down from an estimated 25% in 2025, whereas return on belongings is predicted to ease to about 3.0%–3.1%.
Profitability is predicted to be supported by still-elevated curiosity margins, development in non-interest revenue, and barely decrease mortgage loss provisions.
Though rates of interest are projected to say no, S&P mentioned they might stay excessive relative to see markets, persevering with to assist web curiosity margins.
Non-interest revenue is predicted to profit from larger charges and commissions, pushed by increasing digital funds, retail banking companies, and company banking networks.
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