Nigerian Banks Face Slower Profit Growth in 2025

Nigerian banks, which have experienced a remarkable profit surge over the past two years, are now bracing for a more tempered financial performance in 2025.

The financial boom was largely driven by favorable foreign exchange revaluations and aggressive interest rate hikes introduced by the Central Bank of Nigeria (CBN) to combat inflation and stabilize the naira. These two factors allowed banks to benefit significantly from exchange gains and higher yields on interest-earning assets. However, those tailwinds are beginning to dissipate, leaving banks to strategize on how to sustain momentum in a more normalized economic environment.

Financial analysts and market observers note that most Tier-1 banks had capitalized on the FX volatility in 2023 and 2024, which led to large revaluation gains on their foreign currency holdings. Additionally, the Monetary Policy Rate (MPR) hikes, which reached double digits, helped banks increase their interest income. But with the CBN now pursuing a more stable FX regime and potentially easing monetary policy to support growth, those drivers are weakening. This new reality is expected to challenge banks’ ability to deliver strong returns to shareholders.

Moreover, banks are likely to face rising non-performing loans (NPLs) as businesses adjust to the high cost of borrowing. Many small and medium-sized enterprises (SMEs) that expanded operations during the era of easy FX profits are now struggling to meet debt obligations.

This could lead to higher provisioning costs for banks, further squeezing their bottom lines. Also, customer deposits are growing more slowly than in previous years, possibly limiting banks’ capacity to lend aggressively.

In response, financial institutions are exploring diversification strategies such as digital banking innovations, agency banking expansion, and venturing into non-interest banking. Several banks are also investing in fintech partnerships to broaden their service offerings and tap into underserved demographics. However, these strategies take time to yield results and carry their own risks, particularly in Nigeria’s volatile regulatory environment.

Ultimately, the trajectory of Nigerian banks in 2025 will depend heavily on macroeconomic conditions, CBN’s policy direction, and global financial trends. If inflation persists or oil prices decline, banks may experience additional pressure. Stakeholders are closely watching to see how the sector adapts to the post-FX-reform era, especially with increasing competition from fintechs and digital financial service providers.