Government Securities Now Make Up 11% of Nigerian Banks’ Assets — S&P Warns of Sovereign Risk Exposure
Government securities now account for about 11 per cent of Nigerian banks’ total assets, highlighting years of constrained credit extension and a growing preference for low-risk sovereign instruments, according to a new 2026 Nigerian Banking Outlook by S&P Global. The trend reflects banks’ cautious lending posture amid economic volatility and structural constraints in the real sector.
S&P Global warned that the increasing exposure has made banks more sensitive to sovereign-related shocks, although it expects this risk to ease gradually. The ratings firm noted that as macroeconomic conditions improve, fiscal deficits narrow, and lending to productive sectors increases, the tight link between banks and government finances should begin to moderate.
Despite regulatory headwinds, tighter capital requirements, and easing interest rates, the firm said Nigerian banks are expected to remain resilient and profitable over the medium term. Nigeria’s real GDP growth is projected to average 3.7 per cent in 2025 and 2026, supported by activity in both oil and non-oil sectors, while inflation is forecast to ease to around 21 per cent in 2026, creating room for further monetary policy easing.
Against this backdrop, nominal credit growth is projected at about 25 per cent, driven largely by increased lending to the oil and gas, agriculture, and manufacturing sectors. Lending to oil and gas is expected to support higher production following efforts to curb militancy and crude oil theft, while retail lending is projected to contribute only marginally due to its relatively small share of banks’ loan portfolios.
However, S&P Global cautioned that real credit expansion will remain modest, weighed down by high inflation and structural challenges. The report flagged concentration risks, noting that about half of total loans are denominated in foreign currency, roughly one-third are linked to the oil and gas sector, and nearly 50 per cent of gross loans are concentrated among the top 20 borrowers, increasing vulnerability to sector-specific and single-name shocks.
source: punch