The Nigerian banking sector is facing a profitability plateau as the extraordinary gains of the 2024–2025 fiscal years begin to fade.
Analysts are warning that lenders will struggle to deliver double-digit earnings growth in 2026, primarily due to the expected contraction of Net Interest Margins (NIM).
Research firm Renaissance Capital in a January 16 note says it expects most of its coverage banks (Zenith, GTCO, Access Holdings and UBA) to struggle to deliver earnings growth in 2026 comparable to their 2025 performance, given the CBN’s anticipated 400 basis points (bps) –500bps rate cut.
“We see NIMs contracting following the expected rate cuts, as we do not anticipate our coverage banks significantly expanding interest-earning assets to offset the decline in rates, given the high CRR regime,” Renaissance Capital analyst Olumide Sole said
“We, however, do not rule out the potential impact of the 2026 NGN 20tn budget deficit, which could increase government borrowing demand and, in turn, drive yields on government securities higher.”
While the 2024–2025 period was characterized by high-interest rates and massive foreign exchange revaluation gains for Nigerian banks, 2026 is shaping up to be a year of structural adjustment and “normalization.”
The NIM Squeeze: Why Margins are Contracting
As the era of elevated interest rates draws to a close and FX related gains normalize, driven by expectations of rate cuts this year and a relatively stable Naira, respectively, analysts expect Nigerian banks to face challenges in growing earnings.
Nigerian banks Net Interest Margin (NIM)—the difference between what a bank earns on loans and what it pays on deposits—is being pressured by two main forces:
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The Interest Rate Pivot: With inflation finally cooling to 15.15% (as of Dec 2025), the Central Bank of Nigeria (CBN) is expected to transition to a dovish monetary stance. As the Monetary Policy Rate (MPR) drops, the yields on government securities and prime lending rates will fall faster than the cost of servicing expensive term deposits.
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Intense Deposit Competition: As banks scramble to meet the 2026 Recapitalization deadlines, there will be a fierce “war for deposits.” Lenders would begin to offer higher interest rates to attract retail and corporate funds to bolster their liquidity ratios, effectively raising their Cost of Funds (CoF).
The End of FX Revaluation Windfalls
A major driver of the record-breaking profits in 2024 and early 2025 was the devaluation of the Naira, which resulted in non-cash “revaluation gains” for banks with long FX positions.
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Currency Stability: With the Naira stabilizing in early 2026, these “paper profits” have largely evaporated.
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Regulatory Clawbacks: The CBN’s earlier directive prohibiting banks from using FX gains for dividends or operational expenses has also limited the “distributable” impact of these gains, leaving banks to rely purely on core banking operations.
Dilution from Recapitalization
The massive issuance of new shares via Rights Issues and Public Offers means that even if a bank maintains its absolute profit levels, its Earnings Per Share (EPS) and Return on Equity (ROE) may likely decline.
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Capital Overhang: Banks like Zenith, Access, and UBA are significantly increasing their share counts. Dividing the “earnings pie” among a much larger pool of shareholders will make individual returns look leaner in 2026 compared to the “pre-recapitalization” era.
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