Agusto & Co projects 19% drop in banks’ 2025 profit

Agusto & Co., a pan-African credit rating agency, has projected a 19.2 percent decline in the profits of Nigerian banks in the 2025 financial year.

In its latest report on the banking sector, the agency said profit before taxation (PBT) will fall sharply.

The firm also said pre-tax return on average equity is forecast to drop to 27.3 percent from 48.2 percent recorded in 2024.

Pre-tax return on average equity measures how much a company earns from its equity before taxes.

“In the financial year ended 31 December 2024, the high-yield environment sustained the Industry’s performance. The steep naira depreciation also supported profitability, albeit lower than the prior year, largely due to the zero net open position directive of the CBN,” Agusto and Co. said.

“In FY 2025, we anticipate a decline in profitability indicators. The need for the appropriate provision level on the hitherto forbearance loans will drive a surge in the impairment charge.

“The decision of some banks to accelerate the provision coverage and write off some impaired loans as part of the transitional reliefs will also contribute to higher impairment charges.

“In addition, we anticipate lower foreign currency revaluation gains that have bolstered profitability since FY 2023.

“Overall, we expect a 19.2% decline in profit before taxation with the pre-tax return on average equity plummeting to 27.3% (FY 2024: 48.2%) in FY 2025.”

According to Agusto’s report, the decline will be driven largely by a surge in impairment charges as banks make appropriate provisions for loans previously under regulatory forbearance.

The report noted that many banks are likely to take advantage of the Central Bank of Nigeria’s (CBN) transitional relief which waives the mandatory 12-month waiting period for write-offs of fully provisioned impaired loans to accelerate the clean-up of their loan books.

“We anticipate a surge in write-offs as some banks leverage the transition relief to address non-performing forbearance loans,” the firm stated.

The company also said the industry’s impaired loan ratio could rise to 6.9 percent in the short term.

Despite the short-term challenges, the firm maintains a “stable” outlook for the Nigerian banking industry, projecting a rebound in profitability from 2026 as capital raised by lenders is deployed and the spike in impairment charges begins to moderate.