Nigerian banks are expected to contend with elevated loan losses through 2026 as high interest rates, persistent inflation and the withdrawal of regulatory forbearance continue to weigh on the quality of their loan books, S&P Global Ratings has said.

The outlook reflected a broader trend across Africa’s largest banking markets, with lenders in Nigeria, South Africa and Egypt forecast to face rising credit losses as geopolitical tensions, tighter global financial conditions and stubborn inflation increase pressure on businesses and households.

The projections are contained in S&P Global Ratings’ ‘Global Banking Outlook 2026 Midyear Update: Emerging Europe, Middle East and Africa (EMEA),’ released yesterday.

The ratings agency said banking systems across emerging Europe, the Middle East and Africa remain broadly resilient, but warned that operating conditions are becoming more challenging.

“We expect many banking sectors in emerging EMEA, despite general resilience, will face increasing credit losses, as rising inflation weighs on household disposable income and corporate profitability,” the report stated.

S&P said a prolonged conflict in the Middle East could further worsen banks’ asset quality across the region.

“If the instability in the Middle East continues for a prolonged period, asset quality deterioration and the related increase in credit losses could be significant,” it said.

The report also identified uncertainty over the United States Federal Reserve’s interest-rate path and weaker investor confidence in emerging markets as additional risks that could tighten financing conditions across emerging Europe, the Middle East and Africa.

For Nigeria, however, S&P said the country is less vulnerable to the direct spillover effects of the Middle East conflict because it is a net oil exporter and an emerging producer of refined fuels.

“As a net oil exporter and an emerging producer of refined fuels, Nigeria is less exposed to the spillover effects from the Middle East war,” the report noted.

Even so, S&P expects domestic economic conditions to remain a challenge for the banking sector, with inflation, unemployment and poverty projected to stay elevated. It added that high interest rates and the removal of regulatory forbearance would continue to put pressure on banks’ asset quality.

“Additionally, the removal of regulatory forbearance and high interest rates will continue to weigh on banks’ asset quality,” the report said.

Against that backdrop, S&P expects Nigeria’s non-performing loan ratio to stabilise at between six and seven per cent in 2026, while credit losses remain elevated at between two and 2.5 per cent.

Despite those pressures, the agency said Nigerian banks are expected to generate sufficient earnings to absorb higher provisioning costs.

“We expect most banks will be able to absorb the incremental provisioning requirements thanks to their strong profitability, even as average return on equity normalises at about 20 per cent to 23 per cent in 2026, compared with an estimated 25 per cent in 2025,” it stated.

In Egypt, S&P said banks’ creditworthiness remains closely tied to that of the sovereign because exposure to the public sector accounted for about 61 per cent of total banking assets as of December 31, 2025.

It expects the Middle East conflict to slow economic growth and weaken private sector credit demand in the country. Combined with tighter monetary policy, average credit losses are projected to increase to about 150 basis points in 2026 and 2027 from about 130 basis points in 2025.