Global credit rating agency, Fitch Ratings, has expressed confidence in the resilience of Nigerian banks, stating that their strong profitability will cushion the impact of the recently imposed windfall tax on foreign exchange gains.
Fitch made this known in its latest rating report, where it upgraded Nigeria’s Long-Term Foreign-Currency Issuer Default Rating from ‘B-’ to ‘B’, maintaining a stable outlook.
Following the June 2023 naira devaluation, the federal government amended the Finance Act to tax banks’ significant FX gains. Six banks paid a total of N205.59bn in windfall taxes for the 2024 financial year, with Zenith Bank and UBA leading the payments at N63.31bn and N57.91bn, respectively.
However, Fitch believes this fiscal measure won’t significantly hurt the banks’ bottom lines. “The windfall tax on realised gains on FX transactions appears to be much less significant than we initially feared and will be absorbed by strong profitability,” it said.
Fitch projects a rise in Nigeria’s non-performing loan (NPL) ratio in 2025 due to sustained high inflation and interest rates. While Stage 2 loans remain elevated in some banks, Fitch noted that the relatively small loan books—just 35% of total assets—will limit the potential hit to profitability.
It also praised ongoing efforts by banks to raise capital in line with the Central Bank of Nigeria’s 2026 recapitalisation deadline, suggesting mergers and acquisitions are likely among smaller, third-tier banks.
Fitch noted modest progress in managing foreign exchange pressures. It estimated Nigeria’s net foreign reserves will climb to $23bn by end-2024, up from just $4bn at the end of 2023, though it flagged limited transparency in reserve composition.
The agency also revealed that the share of gross reserves made up of FX swaps with local banks had dropped from 25% to 14%, citing CBN’s effort to reduce FX liabilities.
Despite these gains, Fitch warned of a widening budget deficit in 2025–2026, projected to average 4.2% of GDP, driven by rising wages, security spending, debt servicing, and pre-election expenses ahead of 2027.
While revenue is expected to rise through non-oil tax reforms, Fitch expressed concerns about structural weaknesses, noting Nigeria’s government revenue-to-GDP ratio will remain low at 13.3%, with interest payments taking up over 30% of revenue—a high risk indicator.
Nigeria’s public debt-to-GDP is forecast to decline marginally to 51%, supported by nominal GDP growth. Fitch noted that over half of Nigeria’s debt is denominated in local currency and carries a long average maturity of 10.9 years.
However, external debt servicing costs are expected to rise to $5.2bn in 2025, including a $1.1bn Eurobond repayment. A delayed coupon payment on a $4bn Eurobond in March 2025 was cited as a signal of weak public finance management.
Fitch anticipates a boost in oil refining capacity in 2025 as the Dangote Refinery scales up from 0.55mbpd to 0.65mbpd by Q2, meeting domestic demand and reducing costly fuel imports.
It also projects a modest rise in crude oil production (excluding condensates) to 1.43mbpd in 2025–2026, up from 1.34mbpd in 2024, helped by improved onshore surveillance and higher investments. Still, output will remain below pre-2019 levels due to underinvestment and persistent outages.
