Regulatory pressure, capital rules test Nigerian banks in 2026

Nigerian banks are expected to face increased pressure in 2026 as tighter regulation, higher capital requirements and easing interest rates reshape operating conditions, according to a new report by S&P Global. Despite these challenges, the ratings firm said lenders are likely to remain profitable, supported by steady income streams and improved capital positions.

Regulation and margins under pressure

In its Nigerian Banking Outlook 2026, S&P Global said the end of regulatory forbearance, higher capital thresholds and lower interest rates will weigh on asset quality and net interest margins across the sector.

The report noted that while borrowing costs have started to decline, interest rates are expected to remain high enough to continue supporting margins. However, S&P forecasts that average margins will fall by between 50 and 100 basis points in 2026.

“We anticipate Nigerian banks will prove resilient and capable of preserving positive profitability in 2026 despite regulatory headwinds,” S&P Global said.

The firm added that banks will continue to benefit from strong yields on government securities and access to low-cost customer deposits, even as margins come under pressure from lower rates.

Profitability to normalise

S&P Global expects profitability to moderate in 2026 as banks expand their equity bases through capital issuance. The sector’s average return on equity is projected to decline to between 20 percent and 23 percent in 2026, compared with an estimated 25 percent in 2025. Return on assets is expected to ease to around 3.0 percent to 3.1 percent, from 3.3 percent 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.

Despite this moderation, banks are forecast to preserve earnings, supported by growth in net interest income and a cost of risk that remains elevated but is easing.

Fees, commissions and rising costs

Fee and commission income is expected to remain a key driver of earnings as retail banking expands and transaction volumes increase. S&P said growth in net interest income will increasingly come from non-lending activities.

“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 Global said.

At the same time, operating expenses remain high, partly due to regulatory charges. The Asset Management Corporation of Nigeria (AMCON) levy, set at 0.5 percent of on- and off-balance sheet assets, is estimated to account for between 15 percent and 20 percent of banks’ total operating costs.

BusinessDay analysis shows that Nigeria’s largest banks paid a combined N442 billion in AMCON levies in the first half of 2025, a 34 percent increase from N330 billion in the same period of 2024. The rise came as profits weakened, driven by higher funding costs, slower loan growth and a decline in revaluation gains.

Capital buffers strengthen

On capitalisation, S&P expects buffers to improve as banks complete capital-raising programmes to meet new regulatory requirements introduced by the Central Bank of Nigeria.

Under the new rules, effective March 31, 2026, banks with international licences must hold minimum capital of N500 billion, while national lenders must maintain N200 billion, up from the previous N25 billion threshold.

Rated banks have raised about N2.3 trillion so far, close to S&P’s estimated total requirement of N2.5 trillion. Of the 10 rated commercial banks, representing around 80 percent of system assets, nine already meet the new standards.

“We expect banks to continue to meet their regulatory capital requirements over the next 12 months, supported by earnings and recent capital raises,” the report said.

S&P added that some smaller lenders may pursue mergers or adjust their business models to comply, while the capital boost is expected to strengthen loss-absorption capacity across the sector.