Fitch Ratings has projected a challenging year ahead for African banks, including Nigerian financial institutions, in its African Banks Outlook 2025 report. The agency highlighted domestic and global operating environment risks, including the potential fallout from declining commodity prices and persistent inflation. While reduced interest rates are expected to boost credit demand and investment confidence, asset quality risks remain significant due to economic pressures on households and businesses. Fitch anticipates a slight improvement in impaired loan ratios driven by loan growth and easing inflation, with banks leveraging strong pre-impairment profits, non-interest income, and operational efficiency to manage these challenges.
A key concern for African banks is sovereign debt distress, as many countries grapple with heavy debt-servicing burdens. For Nigeria, Fitch noted that President Bola Tinubu’s administration has improved credit prospects through orthodox economic policies, but inconsistent policy communication has eroded investor confidence. Challenges remain in the foreign exchange market, where a lack of transparency and divergence between official and parallel market rates indicate lingering currency pressures. Additionally, fiscal uncertainties loom, with ambitious budget deficit reduction targets relying on optimistic oil revenue assumptions and politically sensitive tax reforms.
Fitch emphasized the importance of boosting Nigeria’s non-oil revenues, given the country’s extremely low revenue-to-GDP ratio compared to peer nations. Efforts to raise the VAT rate and other reforms are critical to stabilizing fiscal policies and enhancing the country’s credit profile. However, failure to meet fiscal targets could increase inflationary and currency pressures. Fitch concluded that while African banks are generally well-capitalized and liquid, the tough operating environment in 2025 may lead to slight performance declines, particularly in nations with lower interest rates affecting government securities yields.
