• Capital buffers improve amid heavy exposure to government securities
James Emejo in Abuja
International rating agency Fitch Ratings has revised the outlooks on 11 Nigerian banks and bank-related institutions to positive from stable, signalling the possibility of an improved credit standing as economic reforms strengthen the country’s sovereign profile.
The rating action, followed Fitch’s revision of Nigeria’s long-term issuer default rating outlook to positive on October 9, reflecting its increased confidence in the continuity of policy reforms ahead of the country’s next election cycle.
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.
Nevertheless, capital adequacy remains a differentiating factor among lenders.
First Bank, which breached its minimum bank-solo capital adequacy ratio requirement of 15 per cent at the end of 2025 following a sharp increase in impaired loans, restored compliance during the first half of 2026.
Its capital adequacy ratio rose to 16.7 per cent by the end of June, supported by strong profitability and a modest injection of core capital.
Access Bank, however, remains under pressure to address a separate regulatory breach involving investments in foreign subsidiaries.
Fitch said the bank had exceeded the regulatory limit restricting such investments to 10 per cent of shareholders’ funds. Its bank-solo capital adequacy ratio stood at 17.4 per cent at the end of the first quarter, providing only a moderate cushion above the 15 per cent minimum requirement.
The agency expects Access Bank to complete measures, including the repatriation of capital from and disposal of certain smaller subsidiary shareholdings, to restore compliance and strengthen its standalone capital position by the end of the first quarter of 2027.
These differences suggest that the benefits of an improving operating environment will not necessarily translate into uniform credit outcomes across the banking industry.
Further upgrades depend on sovereign rating
Fitch indicated that a future upgrade for Access Bank, Zenith Bank, First HoldCo, First Bank, UBA, GTCO and GTB would require an upgrade of Nigeria’s long-term issuer ratings, alongside the maintenance of stable financial profiles.
For Fidelity Bank and FCMB, an upgrade would also require an improvement in Fitch’s assessment of the operating environment. Wema Bank would need to meet similar conditions and strengthen its business profile.
The agency said a downgrade of Nigeria’s long-term issuer ratings would trigger corresponding downward pressure on the ratings of the affected commercial banks and holding companies.
Even without a sovereign downgrade, material deterioration in problem loans, erosion of capital buffers or a severe tightening of foreign-currency liquidity could lead to negative rating action.
The outlooks on First HoldCo and GTCO also remained subject to their capital structures. Fitch said the holding companies could be rated below their respective banking groups if common-equity double leverage rose above 120 per cent for a sustained period.
For Bank of Industry (BoI), the positive outlook reflected the possibility that the federal government’s capacity to provide support could improve alongside the sovereign’s credit profile.
The development bank’s rating was driven by expectations of government support, underpinned by the state’s 99.9 per cent ownership, the institution’s established development-finance mandate and its significant reliance on government-guaranteed funding.
However, Fitch noted that the government’s ability to support the bank remained constrained by the cou try’s own credit standing.
The rating action leaves the affected institutions’ national ratings unchanged, as well as the government support ratings of the eight commercial banks and two bank holding companies covered by the assessment.
Nonetheless, the positive outlooks offered a more favourable external assessment of the economic environment for banks.
The prospect of actual ratings upgrades will depend not only on sustained reform momentum and improved sovereign creditworthiness, but also on individual banks’ ability to preserve capital strength, manage impaired loans and maintain adequate liquidity.