S&P Says Nigerian Banks Will Stay Resilient Despite Inflation, High Interest Rates

Global ratings agency S&P Global Ratings has said Nigerian banks are expected to maintain resilient financial performance despite persistent macroeconomic pressures. The agency warned that real credit growth in the sector remains subdued amid high inflation and elevated interest rates.

In its latest assessment of Nigeria’s banking and external sector conditions, S&P noted that lenders continue to benefit from high interest rates and low-cost domestic deposits. However, credit expansion to the private sector remains weak in real terms and below 30 percent of nominal Gross Domestic Product.

High interest rates are supporting bank profitability because lending rates reprice quickly, while most funding still comes from relatively cheap local deposits. Capitalisation levels across the industry are improving as banks raise fresh capital to comply with the Central Bank of Nigeria’s new minimum capital requirements due by March 2026.

But the agency warned that persistent inflationary pressures and tight monetary conditions would continue to weigh on asset quality and loan performance. “High inflation and resulting interest rates will keep credit losses elevated at between 2.5 percent and 3.0 percent and put some pressure on asset quality,” the report stated.

S&P also expressed concern over the banking industry’s heavy exposure to the oil and gas sector. That segment now accounts for more than one-third of total industry loans following the sharp depreciation of the naira.

Despite these risks, S&P said Nigerian banks are likely to remain resilient due to stronger capitalisation buffers and continued earnings support from the high-interest-rate environment.

The agency projected that Nigeria’s usable reserves, defined as gross reserves minus reserves committed to forwards, would average about $50 billion between 2026 and 2029. That compares with approximately $19 billion at the end of 2023.

S&P acknowledged improvements in Nigeria’s foreign exchange market following reforms introduced by the CBN in mid-2023, including the liberalisation of the naira exchange rate regime. According to the report, the naira is now largely market-determined, while foreign exchange backlogs have been substantially cleared.

The currency depreciated sharply during 2023 and 2024 after the reforms but has since recovered part of its losses. It was trading around N1,360/$ in May 2026 compared with about N1,595/$ in May 2025.

S&P noted that before the reforms, businesses and households faced severe constraints in accessing foreign exchange due to extensive restrictions and multiple exchange rate practices. Most of those restrictions have now been removed, with only 17 import items still facing foreign exchange limitations. This has improved access for banks, corporates and households.

The agency added that improved liquidity in the FX market has enabled the CBN to scale back interventions as market turnover strengthened significantly.