Nigerian banks are entering a phase of slower profit growth in 2025, as the windfalls from naira devaluation and aggressive interest rate hikes begin to fade. With foreign exchange (FX) gains normalising and credit expansion still weak, the sector’s once-robust earnings momentum is showing signs of fatigue.
According to data from the Nigerian Exchange Limited (NGX), the combined after-tax profit of nine major commercial banks—Zenith Bank Plc, Guaranty Trust Holding Company (GTCO) Plc, First Holdco Plc, Access Holdings Plc, United Bank for Africa (UBA) Plc, Fidelity Bank Plc, Wema Bank Plc, Stanbic IBTC Holdings Plc, and FCMB Group Plc—rose slightly by 0.74% to ₦1.35 trillion ($847.3 million) in Q1 2025.
This is a stark contrast to the 274.3% profit growth recorded in Q1 2024.
Much of the record earnings last year were fueled by the federal government reform—such as the two rounds of naira devaluation in July 2023 and January 2024, and a sharp increase in interest income driven by the Central Bank of Nigeria’s (CBN) aggressive monetary tightening. The Monetary Policy Rate (MPR) rose by 875 basis points to 27.50% between July 2023 and May 2025.
Now, as profit growth slows, analysts warn that underlying weaknesses in traditional banking functions—such as mobilising deposits, issuing loans, processing payments, and earning stable interest and fee income—are beginning to surface.
“The era of abnormal profit growth for the banks is over,” said Tony Brown, an Abuja-based banking analyst. “In the last two years, profits were driven by external shocks. This year, we’re seeing a return to more organic and sustainable earnings patterns.”
Still, some growth is expected. Mobifoluwa Adesina, an investment research analyst at Afrinvest West Africa Limited, projects after-tax profit growth of 30% to 40% for banks in 2025, although slower than in previous years.
“We don’t expect any rate cuts until the second half of 2025, and we forecast that the MPR will remain above 26% by year-end,” he said. “Also, with the naira recording only a 4.3% depreciation year-to-date, FX gains won’t match the scale we saw in 2024.”
Flattening income lines
The moderation in earnings is already evident in Q1 results. FX revaluation gains—one of the key drivers of 2024 profits—have reduced from previous high levels following relative stability in the naira. Data from the CBN shows the average official exchange rate rose to ₦1,450/$ in 2024 from ₦645.10/$ in 2023. Since January 2025, the naira has traded within the ₦1,500–₦1,600/$ range.
“Volatility in the exchange rate has dropped significantly—from over four percent a year ago to less than half of one percent now,” CBN Governor Olayemi Cardoso said at the 300th Monetary Policy Committee (MPC) meeting on May 20.
As a result, combined FX revaluation gains for Zenith, GTCO, Access, UBA, Fidelity, and FCMB declined to ₦240.7 billion ($150.6 million) in Q1 2025 from ₦2.58 trillion ($1.6 billion) in 2024 and ₦723.9 billion ($453.8 million) in 2023.
Also, the MPR—held steady at 27.50% in May—has begun to squeeze interest income growth. The nine banks posted interest income growth of 52.7% in Q1 2025, down from a blistering 137.4% in the same period last year.
“The trend of high interest income is expected to plateau this year with the CBN maintaining current rates,” said Ola A., a Lagos-based banking analyst.
Traditional drivers reemerge
Before the FX reforms and interest rate shocks, banks relied more heavily on core revenue sources: fee and commission income from electronic transactions, account maintenance fees, and trade finance.
In earlier years of lower interest rates, banks also enjoyed low-cost funding—particularly through current and savings accounts (CASA)—which helped sustain healthy net interest margins. These margins, defined as the difference between interest income earned on loans and investments versus interest paid on deposits relative to total earning assets, were a bedrock of profitability.
Concerns on IT spend
With profit growth slowing, concerns are emerging about potential cutbacks in capital and operational expenditures, especially around technology investments. This comes at a time when competition from fintechs and telco-backed digital banks is intensifying.
Of the nine banks analysed, only GTCO and First Holdco reported profit declines of 45% and 22%, respectively, in Q1 2025. While First Holdco did not disclose its IT spending, GTCO reported a year-on-year drop in technology investment to ₦12.8 billion from ₦14.4 billion.
GTCO did not respond to a request for comment.
However, Brown emphasised that technology remains a core expenditure for banks. “The banks’ whole service structure depends on it. Whether you are raking in billions or not, IT expenditure determines profit growth,” he said.
Cautious outlook
With no major currency shocks or further rate hikes on the horizon, banks face a year of moderate returns and sharper cost discipline. While strong capital buffers and diversified income lines offer some resilience, the shift to a normalised earnings environment will test how well banks can adapt.
For now, the days of record-breaking profit declarations may be over. The focus is shifting to how banks can maintain relevance and competitive strength in an environment of normalised earnings and growing digital competition.
