Nigerian banks’ impaired loans ratios increased sharply, putting pressure on capitalisation, following the withdrawal of longstanding forbearance at end half-year 2025, Fitch Ratings has disclosed.

However, this pressure was offset by good internal capital generation and capital raisings to meet new paid-in capital requirements that became effective at quarter one 2026.

The regulatory forbearance withdrawal led to some problem loans, particularly oil and gas loans, being reclassified as impaired.

The banking sector’s impaired loans ratio increased to 8% in the first month of 2026 (end-2024: 4.5%), but Fitch expects it to decline to about 5% at end-2026 on higher oil production and prices, and write-offs.

“Capital raisings to meet the new requirements have enabled many banks to absorb additional provisions, particularly prudential provisions that completely disregard collateral, resulting from higher impaired loans, and capital deductions resulting from single-obligor limit breaches, while generally remaining compliant with their respective minimum total capital adequacy ratio requirements”, the UK based firm said.

“Profitability generally declined in 2025 due to increased loan impairment charges and the lack of foreign-exchange revaluation gains that occurred because of the devaluation of the Nigerian naira in 2023-2024”.

Fitch expects profitability to improve slightly in 2026 on declining loan impairment charges and net interest margins remaining broadly stable as the Central Bank of Nigeria pauses its monetary easing in response to renewed inflationary pressures.

Fitch forecasts loan growth to accelerate to about 20% in 2026 (2025: 2%) as banks begin deploying the fresh capital they have raised.

It pointed out that the naira devaluation has benefitted sector foreign-currency liquidity as it has led to higher foreign-exchange market turnover, concluding that this improvement has been timely given that several banks have maturing Eurobonds.