Nigeria’s banking sector is likely to face renewed asset quality stress in 2026 following the full withdrawal of regulatory forbearance measures by the Central Bank of Nigeria (CBN) in 2025, according to a new assessment by S&P Global Ratings.
The ratings agency noted that banks with higher risk appetites, particularly those with substantial exposure to the oil and gas sector, have already recorded a sharp increase in impairment charges linked to credit losses.
With regulatory support now fully withdrawn, asset quality metrics are expected to come under pressure, even as banks contend with higher capital requirements and potential margin compression amid anticipated interest rate cuts.
Despite these headwinds, S&P analysts maintain that Nigerian banks are well positioned to absorb the impact and sustain profitability. This resilience, they said, will be supported by continued growth in non-interest income, driven largely by transaction fees, commissions, and other service-related revenues, alongside a gradual moderation—though still elevated—cost of risk.
The agency warned, however, that credit risk will remain pronounced following the removal of forbearance, as the creditworthiness of several restructured exposures remains fragile.
“These risks could weigh on asset quality in 2026 and beyond, particularly if oil prices fall materially below our expectations,” S&P stated.
The ratings firm projects that non-performing loan (NPL) ratios will remain elevated at around 6% to 7% in 2026. This follows the lifting of forbearance on multiple oil and gas sector loans in June 2025, which triggered a notable deterioration in asset quality metrics.
Sector-wide NPLs rose sharply to approximately 7.0% in 2025, up from 4.9% in 2024, largely reflecting the end of regulatory relief on oil and gas exposures.
The forbearance framework, introduced in 2020, allowed banks to classify certain loans under Stage 2 rather than Stage 3, reducing immediate provisioning requirements. While some lenders have proactively written off affected exposures, others remain in the process of restructuring or gradually cleaning up their loan books.
S&P cautioned that the underlying credit quality of these exposures remains weak and highly sensitive to oil price volatility. The agency forecasts average oil prices of $60 per barrel in 2026 and $65 thereafter, levels it believes should be sufficient to keep most borrowers solvent.
“We expect the NPL ratio to stabilize at 6%–7% in 2026, while Stage 2 loans should remain elevated at about 20%–22%, compared with 18%–20% as of September 30, 2025,” the report stated.
The agency further highlighted concentration risks within Nigerian banks’ loan portfolios. Roughly half of total loans are denominated in foreign currency, while close to one-third are linked to the oil and gas sector, exposing lenders to macroeconomic shocks and energy transition risks.
Although banks have been gradually reducing upstream exposure, S&P noted that reforms driven by the Petroleum Industry Act could redirect lending toward the downstream segment of the energy value chain.
Additionally, S&P observed that an average of 50% of gross loans across the sector is concentrated among the top 20 borrowers, with significant overlap among large banks. This high level of single-name and sector concentration continues to elevate credit risk for certain institutions.
 in 2025, according to a new assessment by S&P Global Ratings.){kind=link}