Payments are becoming Nigerian banks’ growth lever, says S&P

Nigerian banks’ profitability is expected to decline marginally in 2026, according to a new banking sector forecast from S&P Global Ratings, an international credit rating agency.

The credit rating agency expects the sector’s average return on equity (ROE) to normalise to 20%–23% in 2026, while return on assets is expected to slip to 3.0%–3.1%. 

Nigerian banks are entering a new phase of profitability: less driven by foreign exchange earning windfalls and interest-rate gains, more sustained by transaction volumes. S&P expects banks to lean harder on non-interest income (NII), particularly fees and commissions, as they expand retail services, process higher payment volumes, and deepen agency banking.

S&P says profitability in 2026 will still be supported by high interest margins, growing NII, and slightly lower provisions. However, NII will play a more prominent role due to rising payment activity and ongoing digitalisation, which now accounts for about 10% of banks’ operating costs, according to the agency.  

The shift is already visible in the numbers. In 2024, seven banks, including Zenith Bank Plc and United Bank of Africa (UBA), earned ₦4.2 trillion ($3.06 billion) profit, boosted largely by windfalls from realised foreign exchange gains. 

But earnings momentum weakened in 2025 as those gains faded: profits at five banks, including Access Holdings and Zenith Bank, fell 15% in the first nine months of 2025.

Transaction-driven income is moving in the opposite direction. E-payments income has been rising as digital transactions surge. In 2024, electronic transaction values rose by 78.33% to ₦1.07 quadrillion ($779.37 billion).

Ten of Nigeria’s biggest banks, including Access Holdings Plc and Guaranty Trust Holding Company (GTCO) Plc, recorded a 58% increase in e-payments income to ₦674 billion ($490.93 million) in 2024. 

In the first nine months of 2025, eight of the country’s biggest banks, including UBA and First HoldCo Plc, earned ₦514.82 billion ($374.99 million) from electronic payments, reinforcing the category as a steady and growing income line.

Beyond transaction volumes, S&P expects Nigeria’s rates to remain high relative to peer markets, keeping net interest margins supported through 2026. This should preserve high yields on government securities and reinforce banks’ reliance on low-cost customer deposits, helping keep funding cheap and margins elevated.

At its last monetary policy committee on November 25, 2025, the Central Bank of Nigeria (CBN) retained the benchmark interest rate at 27%, extending its pause on tightening as it seeks to consolidate progress in price stability, exchange rates, and capital flows.

Costs, however, will remain a drag. S&P flags regulatory expenses, particularly the Asset Management Corporation of Nigeria (AMCON) levy, as a persistent weight on profitability. The levy, charged at 0.5% of on-and-off balance sheet assets, is estimated to account for 15%–20% of banks’ total operating costs, making it one of the sector’s largest recurring cost drivers.

S&P expects the end of regulatory forbearance to pressure banks’ asset quality, while higher capital requirements strengthen banks’ loss-absorption buffers. It also anticipates that net interest margins will come under pressure as expected rate cuts filter through.

In 2026, S&P expects the end of regulatory forbearance to challenge banks’ asset quality, increased capital requirements that will support banks’ loss absorption capacity to come due, and net interest margins to come under pressure because of expected interest rate cuts.

Banks’ non-performing loans rose to 7% in 2025, above the prudential threshold of 5%, reflecting the phased withdrawal of regulatory forbearance introduced during the COVID-19 period, according to the CBN.

Still, S&P expects Nigerian banks to remain resilient and profitable, supported by NII growth and a declining though still elevated cost of risk.