According to S&P Global Ratings, crude oil prices and the volatility of the naira are key risks to Nigerian bank asset quality in 2026.

This was disclosed in its Africa Banking Outlook 2026 titled ‘Favourable Conditions Support Loan Growth And Asset Quality’.

The PUNCH had earlier reported that S&P said that government securities account for about 11 per cent of Nigerian banks’ total assets, underscoring years of constrained credit extension and a sustained tilt towards lower-risk sovereign instruments.

The global rating agency said that while the broader African banking sector is expected to see stabilising asset quality driven by supportive economic conditions, Nigerian lenders face unique vulnerabilities heading into 2026.

S&P said that the specific structure of Nigerian loan books leaves them highly susceptible to external market shifts, particularly regarding energy prices and foreign exchange fluctuations. The primary concern for Nigerian banks remains the heavy concentration of risk in specific sectors and currencies.

S&P Global Ratings notes that while a rise in oil prices could be beneficial, it remains a double-edged sword for the financial system’s stability. “Asset quality in Nigeria remains vulnerable to oil price and currency volatility, since 50 per cent of loans are denominated in foreign currency and about one third are exposed to the oil and gas sector. Most emerging markets remain vulnerable to external shocks; for example, a sharp increase in oil prices could… positively affect Nigeria, but this is not part of our base case scenario.”

As it relates to the deceleration in inflation recorded in 2025, S&P said Nigeria is expected to witness a faster pace of interest rate reductions compared to its peers. This shift, while supportive of broader economic activity, is projected to compress the margins of commercial banks: “Nigerian and Egyptian banks’ profitability is likely to decline due to lower interest rates and stabilising inflation. In Nigeria and Egypt, we expect a sharp reduction in interest rates that will lead to a gradual decline in profitability, partially mitigated by lower credit losses.”

Despite the risks to profitability and asset quality, the fundamental outlook for the Nigerian economy remains positive. S&P forecasts that the combination of government reforms and increased domestic demand will sustain growth: “We forecast robust growth in Egypt, Morocco, and Nigeria… driven by momentum on reforms, infrastructure spending, and increasing consumption.”