Nigeria’s banking sector will continue to face elevated credit losses in 2025, with losses projected at 2.5% to 3.0%, slightly lower than the 3.0% to 3.5% recorded in 2024, according to S&P Global’s Nigerian Banking Sector Outlook 2025.
The report attributes the persistent credit losses to currency depreciation, as foreign currency loans account for 50% of total loans issued by Nigerian banks. High inflation and interest rates have further strained borrowers’ ability to repay, particularly import-dependent businesses and nonessential consumer goods companies.
“The banking system’s dollarisation has increased following the naira’s depreciation in 2023 and 2024,” S&P Global stated, adding that nonperforming loans (NPLs) are expected to rise by 14% in 2025. However, the NPL ratio is projected to drop slightly from 4.3% in 2024 to 3.8% in 2025 due to an increase in gross loans.
Nigeria’s inflation rate is expected to remain elevated at 25% in 2025, down from an average of 34% in 2024. This trend may push the Central Bank of Nigeria (CBN) to further hike interest rates, increasing pressure on borrowers.
On the other hand, higher interest rates will support bank profitability, with Return on Equity (ROE) expected to stay between 20%-25% in 2025. This follows an exceptional 30% ROE in 2023 and 2024, driven by unrealized gains from banks’ foreign exchange positions. However, S&P warns that banks will not see significant unrealized gains in 2025 due to new CBN restrictions.
In January 2024, the CBN imposed strict limits on how much foreign currency banks can hold. Banks were required to adjust their Net Open Positions (NOP) by February 1, 2024, ensuring their forex exposure does not exceed 20% of shareholders’ funds for short positions and zero for long positions.
The measure aims to reduce risks from excessive foreign currency exposure and create a more stable banking sector. The CBN also stressed the need for banks to maintain high-quality liquid foreign assets to meet foreign currency obligations.
Despite macroeconomic challenges, S&P projects Nigeria’s economy will grow by 3.5% in 2025, driven by non-oil sectors and a slight increase in hydrocarbon production. The naira is expected to stabilize, trading between ₦1,625/$ and ₦1,650/$ through 2025 and 2026, while foreign reserves are projected to rise to $32.6 billion on the back of higher exports.
