S&P Global forecasts resilience for Nigerian Banks amidst 2026 regulatory shifts

Nigeria’s banking sector is preparing for a transformative year in 2026 as tighter regulatory oversight, increased capital requirements, and a shift in interest rate dynamics converge to test the industry’s fortitude.

According to the latest Nigerian Banking Outlook 2026 by S&P Global, while these headwinds will likely compress profit margins and challenge asset quality, the nation’s financial institutions are expected to remain fundamentally profitable and resilient.

The ratings agency anticipates that the expiration of regulatory forbearance, combined with a cooling interest rate environment, will lead to a normalization of earnings across the board.

S&P Global projects that the average return on equity for the sector will moderate to between 20 percent and 23 percent in 2026, a slight decline from the 25 percent estimated for 2025.

Similarly, the return on assets is expected to edge down toward the 3.0 percent mark as capital bases expand through significant new share issuances.

A key challenge for the coming year lies in the pressure on net interest margins. As global and domestic borrowing costs begin to retreat, the record-high yields that buoyed bank earnings in previous years are expected to soften.

However, S&P Global notes that banks will likely offset some of this pressure through robust income from transaction fees and commissions, driven by a surge in digital payments and the continued expansion of agency banking networks.

Compounding these margin pressures is the heavy burden of operating expenses, particularly the Asset Management Corporation of Nigeria (AMCON) levy. Recent data indicates that this 0.5 percent charge on assets now accounts for nearly a fifth of total operating costs for some institutions.

In the first half of 2025 alone, Nigeria’s largest lenders, including Zenith Bank and UBA, saw their combined AMCON contributions jump by 34 percent to N442 billion, highlighting the significant cost of regulatory compliance.

Despite these fiscal pressures, the industry’s capital buffers are set to strengthen significantly. Banks are currently in the final stages of massive capital-raising programs to meet the Central Bank of Nigeria’s (CBN) revised minimum thresholds, which become mandatory on March 31, 2026. These new rules require international banks to hold at least N500 billion in capital, while national lenders must maintain N200 billion a steep climb from the previous N25 billion requirement.

S&P Global reports that rated banks have already successfully raised approximately N2.3 trillion, nearing the estimated total system requirement of N2.5 trillion.

Currently, nine out of the ten rated commercial banks already satisfy these new standards, which will significantly improve the sector's loss-absorption capacity under the Basel II framework.

While larger players move toward compliance with ease, the firm expects smaller lenders to navigate the year through strategic mergers or fundamental adjustments to their business models.