Nigerian banks will face increased pressure in 2026 from tighter regulation, higher capital requirements and easing interest rates, although the sector is expected to remain profitable, according to a new outlook by global ratings agency S&P Global.
In its Nigerian Banking Outlook 2026, S&P said the end of regulatory forbearance, stricter capital rules and moderating interest rates will weigh on asset quality and net interest margins across the industry, leading to a normalisation of profitability after several years of outsized returns.
Despite these headwinds, the ratings firm expects banks to preserve positive earnings, supported by continued growth in net interest income, particularly from transaction fees and commissions, as well as a still-elevated — though easing — cost of risk.
“We anticipate Nigerian banks will prove resilient and capable of preserving positive profitability in 2026 despite regulatory headwinds,” S&P Global said.
The agency forecasts that the sector’s average return on equity will decline to between 20 per cent and 23 per cent in 2026, from an estimated 25 per cent in 2025. Return on assets is also expected to edge lower to around 3.0–3.1 per cent from 3.3 per cent in the previous year.
“Profitability will normalise as capital issuance increases equity bases, while margins come under pressure from lower interest rates,” the report said.
Although borrowing costs have started to decline, S&P noted that interest rates are likely to remain high enough to support earnings. The firm projects an average margin compression of between 50 and 100 basis points in 2026, with banks still benefiting from strong yields on government securities and access to low-cost customer deposits.
Fee and commission income is expected to remain a key earnings driver as retail banking deepens and transaction volumes rise, supported by digital payments, agency banking and broader financial inclusion efforts.
“Growth in net interest income will be primarily driven by fees and commissions linked to digital payments, retail services and the expansion of agency banking,” S&P said.
Operating expenses, however, are expected to remain elevated, driven largely by regulatory charges. The Asset Management Corporation of Nigeria (AMCON) levy, set at 0.5 per cent of on- and off-balance sheet assets, is estimated to account for between 15 per cent and 20 per cent of banks’ total operating costs.
Recent industry data show that Nigeria’s largest banks are already grappling with rising AMCON-related costs. BusinessDay analysis indicates that the combined AMCON levy paid by major lenders rose to about N442 billion in the first half of 2025, up 34 per cent from N330 billion in the same period of 2024. This increase came at a time when profits were under pressure from higher funding costs, slower loan growth and a sharp decline in revaluation gains.
On capitalisation, S&P expects buffers to strengthen as banks complete major capital-raising programmes to comply with new regulatory thresholds introduced by the Central Bank of Nigeria (CBN).
Under the revised capital rules, which take effect on March 31, 2026, banks with international licences must maintain a minimum capital base of N500 billion, while national banks are required to hold at least N200 billion, up sharply from the previous minimum of N25 billion.
Rated banks have collectively raised about N2.3 trillion so far, close to S&P’s estimated total capital requirement of N2.5 trillion. Of the 10 rated commercial banks — representing roughly 80 per cent of total banking system assets — nine already meet the new capital standards.
While the capital boost is expected to improve loss-absorption capacity and strengthen resilience under the Basel II framework, S&P warned that smaller lenders may struggle to meet the new thresholds on a standalone basis.
The ratings firm expects some of these banks to pursue mergers, acquisitions or strategic shifts in their business models as they seek to comply with the tougher capital requirements.
“We expect banks to continue to meet their regulatory capital requirements over the next 12 months, supported by earnings and recent capital raises,” S&P said, adding that consolidation risks remain elevated for weaker or smaller institutions under the new regulatory regime.
Overall, S&P concluded that while Nigerian banks are entering a more challenging operating environment in 2026, stronger capital buffers and diversified income streams should help the sector absorb regulatory and macroeconomic pressures.
