Fitch Links Nigerian Banks Positive Outlooks To Improving Sovereign Credit Profile

However, the latest assessment stops short of an immediate ratings upgrade. Fitch affirmed the affected institutions’ long-term issuer default ratings at ‘B’, indicating that the improved outlook reflects the potential for progress rather than a change in their existing credit ratings.

The institutions covered include Access Bank Plc, Zenith Bank Plc, First HoldCo Plc, First Bank of Nigeria Limited, United Bank for Africa Plc, Guaranty Trust Holding Company Plc, and Guaranty Trust Bank Limited.

Others are Fidelity Bank Plc, First City Monument Bank Limited, Wema Bank Plc and Bank of Industry Limited.

Fitch’s assessment pointed to an important link between Nigeria’s macroeconomic trajectory and the creditworthiness of its financial institutions: improvements in the naira, inflation and foreign reserves could ease some of the pressures on lenders, but their substantial exposure to the sovereign remains a key constraint.

The agency said the sovereign’s credit profile and the operating environment could become less restrictive for the standalone creditworthiness of the commercial banks and their holding companies.

Sovereign exposure remains a key vulnerability

Despite the more favourable outlook, Nigerian banks remained heavily exposed to the government and the Central Bank of Nigeria (CBN), leaving their credit profiles vulnerable to any deterioration in the country’s finances, Fitch noted.

According to Fitch, the banks’ sovereign exposure through fixed-income securities and cash reserves held with the CBN was equivalent to between 150 per cent and 500 per cent of their Fitch Core Capital at the end of 2025.

Loans accounted for between 18 per cent and 41 per cent of the affected banks’ total assets at the end of 2025, while CBN cash reserves and Nigerian sovereign fixed-income securities represented between 23 per cent and 45 per cent of their assets.

Fitch’s outlook revision therefore reflected an improved assessment of the broader economic and policy environment rather than the removal of the structural risks confronting the banking industry.

The agency said Nigeria’s operating environment was improving, citing about seven per cent appreciation in the Naira during the first nine months of 2026 and continued growth in gross international reserves.

Inflation, which rose following the outbreak of the Iran conflict, eased to 15.4 per cent in August from 15.9 per cent in June. Fitch expects inflation to decline further, providing scope for continued monetary policy easing.

The agency also forecast real gross domestic product growth of 4.3 per cent in 2026, compared with four per cent in 2025.

Capital raising cushions regulatory reset

The improved outlook also comes against the backdrop of a significant adjustment in the banking sector following the withdrawal of longstanding regulatory forbearance, particularly in the classification of problem loans.

Fitch said the removal of these concessions contributed to higher impaired-loan ratios at the end of 2025. 

However, substantial capital raising by lenders to meet the new minimum paid-in capital requirements effective from the end of the first quarter of 2026 helped cushion the impact and created room for further lending and business expansion.

The agency added that the banking sector had demonstrated resilience despite demanding regulatory requirements, including the 45 per cent cash reserve ratio imposed on commercial banks.