The profitability of banks in Nigeria and Egypt is expected to decline as interest rates fall and inflation stabilises, while lenders in Morocco and South Africa are likely to maintain resilient earnings, according to S&P Global’s latest African Banking Outlook.
The ratings agency said economic and financing conditions across most African markets should remain broadly supportive in 2026, underpinning steady credit growth and stable asset quality.
“While banks’ profitability will vary across countries, we anticipate that most banking sectors will mitigate the impact of declining interest rates through volume growth and lower credit losses,” the report said.
It added that diversified business models would help stabilise profitability for South African banks. “We expect a faster pace of rate reductions in Nigeria and Egypt as inflation subsides, which will affect banks’ profitability in the two countries.”
Egyptian banking profits surge before easing cycle
Data from the Central Bank of Egypt show banks in Africa’s second largest economy posted net profits of EGP 274.9 billion ($5.6 billion) in June 2025, up from EGP 152.8 billion ($3.1 billion) in March, underscoring strong operating resilience ahead of the monetary-easing cycle.
Further analysis shows that net interest income rose to EGP 503.6 billion ($10.2 billion), while net operating income reached EGP 661.1 billion ($13.4 billion). Sector concentration remains pronounced, with the 10 banks accounting for 77.2 percent of total profits, generating EGP 212.2 billion ($4.3 billion), while the top five captured 64.6 percent, or EGP 177.7 billion ($3.6 billion).
Strong interest income from loan books and government securities remained the primary earnings driver.
Nigerian windfall fades as policy cycle turns
In Africa’s most populous nation, two years of bumper profits fuelled by sharp naira devaluations and aggressive monetary tightening are beginning to normalise as currency stability improves and interest rates soften.
Between July 2023 and May 2025, the Central Bank of Nigeria raised the Monetary Policy Rate by 875 basis points to 27.5 percent, significantly boosting yields and interest income for lenders. The environment shifted last year when the central bank paused tightening and later delivered its first rate cut in five years, lowering the MPR to 27 percent in September.
That policy pivot coincided with a slowdown in Tier-1 bank earnings. Four of Nigeria’s largest lenders recorded combined after-tax profits of N2.49 trillion ($1.64 billion) in the first nine months of 2025, down from N3.07 trillion ($1.94 billion) in the same period a year earlier. Although United Bank for Africa posted 2.3 percent profit growth, this represented a sharp deceleration from 17 percent growth in 2024, highlighting the transition from FX-driven windfalls to more normalised earnings.
Morocco and South Africa seen as earnings anchors
S&P expects Moroccan and South African banks to maintain resilient profitability, supported by stronger lending volumes and a declining cost of risk that should offset normalising trading gains in Morocco and margin compression in South Africa.
But Nigeria and Egypt are projected to face gradual profitability declines as interest rates fall, though lower credit losses should provide partial cushioning. “Banks in Tunisia will continue to demonstrate somewhat stable profitability, though hampered by structural inefficiencies and a persistently high cost of risk,” the firm said.
Disinflation drives policy easing across key markets
Egypt launched one of its most significant easing cycles in more than two years in 2025, cutting its key policy rate by a cumulative 725 basis points to 20 percent between February and December after prolonged tightening aimed at containing inflation triggered by currency devaluations and fiscal pressures.
This has made annual urban inflation slowed to 12.3 percent in December 2025, down from about 24 percent in January and below market expectations of 12.5 percent, as the impact of October fuel-price increases faded.
Nigeria also recorded moderating price pressures, with headline inflation easing to 15.15 percent in December 2025, the lowest level since November 2020, following a revision to the consumer-price methodology.
“We forecast that credit conditions will remain supportive, aided by lower interest rates,” S&P said. “We expect rate reductions in Egypt and Nigeria as inflation subsides, and slight rate cuts in Morocco and South Africa, which we anticipate will support infrastructure project financing and broader lending expansion.”
Lower inflation and borrowing costs should improve household disposable income and debt-repayment capacity, particularly in South Africa, where household credit losses have historically driven system-wide asset-quality deterioration.
Structural risks persist beneath improving outlook
Despite stabilising conditions, vulnerabilities remain. In Nigeria, asset quality is still exposed to oil-price swings and currency volatility, with about 50 percent of loans denominated in foreign currency and roughly one-third linked to the oil and gas sector.
Moroccan and Tunisian banks continue to carry elevated non-performing loan ratios due to legacy problem assets and slow regulatory reform. Morocco lacks a deep secondary market for distressed loans, while Tunisia requires a more flexible framework to accelerate write-offs.
S&P also expects higher capital requirements in Morocco and Nigeria. “We expect capitalization for the Nigerian banking sector to improve as banks complete capital-strengthening initiatives to meet new requirements,” the agency said, noting that the minimum common-equity Tier 1 requirement for Moroccan domestic systemically important banks rose by 200 basis points in late 2025.
Banks may respond by reducing dividends, moderating balance-sheet growth, or issuing new capital instruments.
