Banks in Egypt and Nigeria are likely to see profits drop in 2026 as central banks accelerate interest rate cuts following a sharp slowdown in inflation, S&P Global said in its latest Africa banking outlook.
The credit rating agency expects looser monetary policy to weigh on net interest margins in both markets, even as improving macroeconomic conditions support loan growth and ease pressure on asset quality.
“We expect a faster pace of rate reductions in Nigeria and Egypt as inflation subsides, which will affect banks’ profitability in the two countries,” S&P said in its Africa Banking Outlook 2026: Favorable Conditions Support Loan Growth And Asset Quality.
While the decline in earnings is expected to be gradual, S&P noted that higher credit volumes and lower loan defaults should partly cushion the impact as household incomes recover.
Nigeria banks under pressure after record gains
The outlook comes at a critical juncture for Nigeria’s banking sector, which is grappling with tighter regulation, rising capital requirements and the withdrawal of regulatory forbearance — changes that have already begun to weigh on earnings.
After posting record profits in 2024, several of Nigeria’s biggest lenders reported sharp declines last year.
In H1 2025, GTCO, the country’s largest bank by market value, recorded a 50% drop in after-tax profit, while Zenith Bank, the largest by assets, saw mid-year earnings fall for the first time to 7.9% to $372.4 million.
More recently, a $490 million (₦748 billion) impairment charge wiped out 93% of First Bank’s profit for the full year 2025, deepening scrutiny of balance sheet quality across the sector.
Inflation cools, easing cycle gathers pace
Both Egypt and Nigeria saw a sharp deceleration in inflation last year, creating room for monetary easing.
In Nigeria, consumer price inflation fell from 34.8% in December 2024 to 15.5% by December 2025, according to rebased data. Egypt’s annual inflation rate eased from 24.1% to 12.3% over the same period.
As price pressures cooled, the Central Bank of Egypt (CBE) resumed its easing cycle, cutting rates by a cumulative 725 basis points to 20% during the year. The Central Bank of Nigeria (CBN), by contrast, moved more cautiously, delivering a single 50-basis-point cut in September.
Despite the modest adjustment, Nigeria’s policy rate remains among the highest on the continent at 27%, alongside Zimbabwe and Malawi.
If S&P’s projections materialise, the expected rate cuts in 2026 would mark a sharp reversal from the prolonged tightening cycle that constrained credit growth and pushed borrowing costs to decades high.
Asset quality risks linger
While easing financial conditions are expected to support credit expansion, S&P warned that asset quality risks remain elevated, particularly in Nigeria.
About half of bank loans in the country are denominated in foreign currency, leaving lenders exposed to exchange rate volatility and global oil price swings.
Nigeria remains heavily reliant on hydrocarbons, which account for roughly 90% of foreign exchange earnings — a profile that continues to shape credit allocation.
Central bank data shows oil and gas firms absorb a larger share of bank lending, while sectors such as agriculture and manufacturing remain on the sidelines.
Elsewhere on the continent, S&P flagged Morocco and Tunisia as vulnerable to legacy non-performing loans, citing slow progress on regulatory reforms needed to clean up bank balance sheets.
By contrast, South Africa’s banking sector is expected to benefit from rising consumer incomes, lower inflation and falling interest rates, which should support repayments and reduce credit losses.
Ratings signal resilience
Despite the earnings outlook, S&P said banks across Africa’s emerging markets remain broadly resilient.
As of early February, 50% of S&P’s credit ratings on African banks carried a positive outlook, led by lenders in Nigeria and South Africa. These ratings largely mirror improving sovereign credit profiles.
“Our ratings on most banks in the two countries are capped at the sovereign level because, despite their better intrinsic creditworthiness, we do not expect them to be able to withstand a hypothetical default of the sovereign,” the agency said.
Most of the remaining banks carry stable outlooks, although several smaller Nigerian lenders are rated at CC, reflecting mounting recapitalisation pressures.
S&P upgraded 10 of the 22 African banks it rates last year, pointing to stronger capitalisation and better operating environments across parts of the continent.
Reforms to support growth, risks remain
Looking ahead, S&P expects robust economic growth in Egypt, Morocco and Nigeria, alongside a modest recovery in South Africa, driven by reform momentum and stronger government and consumer spending.
Meanwhile, Tunisia’s outlook remains clouded by slow reform progress.
On broader risks, the agency notes geopolitical tensions could disrupt trade routes and commodity markets, dampening investor and consumer confidence, though the likelihood of severe disruptions remains low.
