Nigerian Banks Face Profit Headwinds: Revaluation Gains Fade, Putting Pressure on Growth

Nigeria’s leading banks are experiencing a significant shift in their financial landscape. Recent reports reveal a collective 14.9% dip in after-tax profits for the first nine months of 2025. This decline contrasts sharply with the previous year’s figures, where currency revaluation provided a notable boost. That tailwind has clearly diminished, exposing underlying challenges within the banking sector.

Specifically, the combined profit after tax for Nigeria’s tier 1 banks—First Bank of Nigeria Holdings, United Bank for Africa (UBA), Guaranty Trust Holding Company (GTCO), Access Holdings, and Zenith Bank—totaled N2.91 trillion. Last year the combined profit was N3.42 trillion. This drop suggests that sustaining previous levels of profitability may prove difficult without fresh strategies.

UBA emerges as an exception. They demonstrated resilience. They reported a 3% year-on-year profit increase, posting N537.5 billion. This isolated success calls for an investigation into UBA’s unique approach.

Other banking giants experienced downturns. GTCO witnessed the most substantial decline, a staggering 35.5% drop, resulting in N699.6 billion in profit. FirstBank’s profit slid by 13% to N458.1 billion. Access Holdings showed relative stability; profit dipped by only 2.2% to N447.5 billion. Zenith Bank also felt the squeeze, with an approximately 8% reduction, bringing its profit to N764.2 billion.

The naira’s relative stability, after significant devaluation, is a key factor. The big revaluation gains of prior periods fueled earnings. Those gains have largely dissipated. This situation is further complicated by an expected decline in profit before taxation, with projections suggesting a considerable drop in the pre-tax return on average equity.

A Lagos-based credit rating agency, Augusto&Co, projects a nearly 20% decline in profit before taxation, anticipating the pre-tax return on average equity will plummet to 27.3%. The previous year the return on average equity was at 48.2%. The consultancy anticipates a rebound in 2026. They suggest it will be supported by the ongoing recapitalization exercise and the impact of increased impairment charges. Time will reveal if this projection materializes.

These varied performances underscore the significance of business model choices, operational efficiency, and prudent cost management. Banks heavily invested in high-growth sectors or implementing stringent cost controls appear better positioned to weather the storm. Conversely, those grappling with higher risk-weighted assets or rising loan impairments are enduring greater challenges.

Investors seem to be taking note. Once celebrated on the Nigerian Exchange, bank stocks are currently experiencing significant declines, propelled by slowing earnings and diminished dividend payouts.

GTCO’s stock has shed roughly 9% of its value in recent weeks. Access Holdings faces even steeper losses. Its stock declined by 18% over the past month, raising concerns among shareholders. While Zenith Bank remains up year-to-date, its value has slipped by 11% in the last four weeks alone. The same negative trend touches FirstHoldCo and UBA. The former is down 4.23% in the past month. The latter has seen its value slide by 12%, negating its year-to-date gains.

So, what does this all indicate? The era of easy profits, driven by currency fluctuations, appears to be over for Nigerian banks. Organic growth, driven by strategic lending, diverse revenue streams, and operational discipline, is now paramount. Banks must also navigate the complexities of a changing regulatory landscape and adapt to evolving customer needs.

Several interconnected forces are reshaping the Nigerian banking industry. The drop in revaluation gains acts like a stress test. It exposes vulnerabilities and strengths. Banks that relied heavily on this one-time windfall must now aggressively diversify their revenue sources.

Looking ahead, the ongoing recapitalization efforts will likely play a crucial role. These exercises aim to bolster banks’ capital bases, providing them with greater capacity to extend credit and absorb potential losses. How effectively each bank manages this process will significantly influence its future performance.

The increase in impairment charges also warrants close attention. It suggests a rise in non-performing loans, which can erode profitability and constrain lending capacity. Prudent risk management and proactive loan recovery strategies will be vital to mitigate this risk.

UBA’s success offers valuable lessons. Examining their strategies around loan growth, fee income, and cost management could provide insights for other banks seeking to improve their performance.

The performance of bank stocks offers a real-time barometer of investor sentiment. The recent declines signal concern. Banks must rebuild confidence by demonstrating their ability to generate sustainable earnings and deliver value to shareholders.

The situation demands a nuanced perspective. Easy solutions do not exist. Banks must adapt to a new reality where innovation, efficiency, and strategic foresight are key to long-term success. They must understand that reacting will not be enough; creating the trend and adapting is how growth continues. The next few years will prove pivotal in determining which banks can thrive. Which cannot.