Government securities make up roughly 11 per cent of Nigerian banks’ total assets, highlighting years of limited credit growth and a shift toward lower-risk sovereign investments, according to S&P Global’s latest banking sector outlook.

The ratings agency noted that the growing exposure has heightened banks’ vulnerability to sovereign-related shocks, though this risk is expected to decline gradually as lending to the real economy picks up and macroeconomic conditions stabilise.

In its Nigerian Banking Outlook for 2026, S&P Global added that despite regulatory pressures, stricter capital requirements, and easing interest rates, Nigerian banks are likely to remain resilient and sustain positive profitability in the medium term.

In its outlook, the ratings firm said, “Banks’ share of government securities has been increasing in recent years due to limited credit extension and now accounts for about 11 per cent of the bank’s total assets. The growing exposure increases its vulnerability to sovereign-related shocks.
“We expect the nexus between banks and sovereign risks to slightly moderate as lending gradually increases, targeting real sectors of the economy and as fiscal deficits narrow and economic conditions improve.”

S&P Global forecasts Nigeria’s real GDP growth to average 3.7 per cent in 2025 and 2026, buoyed by stronger performance in both the oil and non-oil sectors.

The ratings firm expects inflation to ease gradually to about 21 per cent by 2026, creating room for additional monetary policy easing following the 50-basis-point interest rate cut in September 2025.

In this environment, nominal credit growth is projected at roughly 25 per cent, led by rising lending to the oil and gas, agriculture, and manufacturing sectors.

The report said increased lending to the oil and gas sector is likely to boost production, following efforts to reduce militancy and curb crude oil theft.

By contrast, retail lending is expected to contribute only modestly to overall credit expansion, reflecting its limited share of banks’ loan portfolios.

Despite the strong headline figures, S&P Global cautioned that real credit growth would remain modest, weighed down by elevated inflation and persistent structural challenges.

The report also flagged concentration risks across banks’ loan portfolios, noting that about 50 per cent of loans are denominated in foreign currency, while nearly one-third of total exposures are tied to the oil and gas sector.

Furthermore, roughly half of gross loans are concentrated among the top 20 borrowers, heightening banks’ exposure to sector-specific and single-obligor shocks.

Asset quality weakened in 2025 after regulators lifted forbearance measures on oil and gas sector exposures.
Non-performing loans increased to around seven per cent in 2025 from 4.9 per cent in 2024, as banks began recognising previously restructured or deferred problem assets.

While some lenders have written off impacted exposures, others continue to restructure them.

S&P Global expects NPL ratios to stabilise between six per cent and seven per cent in 2026, assuming oil prices average about $60 per barrel — a level viewed as adequate to support borrower solvency.