Profits Without Growth: How Lower Loan-Loss Charges Are Masking The Squeeze On Nigerian Banks
Eight of Nigeria’s biggest banking groups made more profit in the nine months to September 2026 than they did a year earlier, with combined profit before tax rising 14.2% to N5.29 trillion from N4.63 trillion, and on the surface that is a strong result in a year of high inflation, high funding costs and tight liquidity. Look underneath that headline, however, and the story changes completely, because the entire increase in profit, and more, came not from lending more profitably, not from growing the core business, but from writing off less for bad loans. Net impairment charges, the money banks set aside for loans that may not be repaid, fell by 48.1% to N977.00 billion from N1.88 trillion, a reduction of about N906.00 billion, while the increase in combined pre-tax profit was only N659.00 billion, which means that without the fall in impairment charges, combined profit would have fallen. This is the central contradiction of the 9M 2026 banking season, that profits rose while the core business shrank, and it forces us to ask whether we are looking at genuine strength or at accounting relief that is covering up a deeper squeeze.
For a bank, the core is simple, take deposits, lend at a higher rate, and keep the difference, and that difference is net interest income, which is still the largest source of banking revenue. In 9M 2026, that core weakened in a way that cannot be ignored. Combined interest income rose marginally by only 0.7% to N12.83 trillion from N12.73 trillion, but interest expense, what banks pay to attract deposits and to borrow, rose faster by 5.1% to N4.95 trillion from N4.71 trillion. The result was a 1.8% decline in combined net interest income to N7.88 trillion from N8.02 trillion, and its share of operating income fell to 67.6% from 69.3%. Combined operating income rose by only 0.7% to N11.65 trillion, while operating expenses rose by 6.4% to N5.39 trillion, and this is a classic margin squeeze where banks are paying more for money than they are earning on it, while their costs are rising faster than their income. In a normal year, that combination would push profits down. In 2026, it did not, because impairment charges fell so sharply that they covered the gap, and that cover is what needs to be interrogated in detail.
The impairment relief was not evenly spread, it was concentrated in two names, and that concentration tells its own story about how fragile the profit growth is. Zenith Bank recorded the largest reduction, with charges falling by about N552.00 billion, yet its profit before tax rose by only 1.2% to N928.80 billion from N917.41 billion, which tells us that even with N552.00 billion of relief, Zenith barely grew profit, and without it, profit would have collapsed. Group Managing Director Adaora Umeoji said that lower funding and credit costs contributed to profitability and improved earnings quality, and that growth in lending, transaction volumes and deposits supported performance, but the numbers suggest that the underlying income engine was not strong enough to deliver growth on its own. Access Holdings saw impairment charges fall by N257.08 billion, or 73.5%, to N92.91 billion, profit before tax rose 8.3% to N667.36 billion, while net interest income grew just 2.7% to N1.29 trillion, and Group CEO Innocent Ike described this as evidence of a stronger earnings base and resilience of core earnings. The numbers suggest a more cautious reading, that the earnings base was protected by lower provisions, not expanded by stronger lending margins. Together, Zenith and Access accounted for about N809.00 billion of the N906.00 billion total reduction, or 89%, and GTCO also benefited from about N39.60 billion in lower charges, but profit still fell 2.3% to N879.90 billion. That is the clearest proof that impairment relief is not a guarantee of profit growth, because if funding costs and operating expenses rise fast enough, even a large provision release cannot save the bottom line.
The eight banks did not all rely on the same lever, and that divergence is revealing because it shows different strategies for surviving the same squeeze. First HoldCo grew profit before tax by 60.8% to N911.24 billion despite a 16.0% fall in net interest income, and it did so through trading and fair-value income, up by about N190.00 billion, and non-interest income up by more than 143%, which is transaction-led growth, not lending-led growth. Stanbic IBTC followed a similar path, with trading revenue jumping to N210.13 billion from N23.86 billion, fee and commission revenue rising to N218.30 billion, and profit rising about 35.0% to N531.88 billion despite a 14.9% fall in net interest income. Wema Bank and Sterling Financial Holdings took the opposite route, with Wema’s net interest income rising 38.3% to N325.88 billion, driving profit up 76.6% to N258.64 billion, and Sterling’s net interest income rising 43.9% to N205.90 billion, driving profit up 37.1% to N97.28 billion, even though higher impairments and expenses absorbed part of the gain. This split matters, because First HoldCo and Stanbic IBTC show that banks can grow by trading, fees and markets, while Wema and Sterling show that banks can still grow by traditional lending, if they can price risk and control funding costs. Zenith, Access, GTCO and Ecobank, whose naira profit slipped marginally to N1.01 trillion, show what happens when neither lever is strong enough on its own. The critical question is sustainability, because trading income is volatile, it can surge in one quarter and reverse in the next, as GTCO’s fair-value losses showed, while fee income is more stable, up 13.2% to N2.26 trillion across the group, and non-interest income overall rose 6.2% to N3.77 trillion, but it is not yet large enough to replace net interest income as the main engine. Lending growth, as shown by Wema and Sterling, is more durable, but it requires careful credit selection in an economy where borrowers are under pressure from inflation, energy costs and foreign exchange volatility, which Ecobank Group CEO Jeremy Awori acknowledged as ongoing risks.
A 48.1% fall in impairments does not happen by accident, and there are three possible explanations, with the truth likely to be a mix of all three, which is why the issue must be interpreted carefully rather than celebrated quickly. First, asset quality may genuinely have improved, because after the heavy provisioning of 2024 and 2025, when banks cleaned up foreign currency loans, restructured exposures and took large hits from naira devaluation, the remaining loan books may be cleaner, and if borrowers are repaying better, provisions should fall. Second, banks may have already taken the pain, because if they front-loaded provisions in prior periods, they have less to provide now, and that would make 2026 look better by comparison, but it does not mean the underlying risk has disappeared. Third, provisioning is a judgement, and management decides how much to set aside based on expected losses, and in a year when operating income is flat and expenses are rising, there is a temptation, conscious or not, to be optimistic about future recoveries. The fact that two banks account for 89% of the relief raises a question that regulators and investors must ask, whether this is a genuine improvement in credit quality, or a release of prudence that will have to be rebuilt later, and the answer will only become clear when we see loan growth, non-performing loan ratios, and whether impairments stay low in 2027. If impairments stay low while loans grow, the improvement is real, and if impairments rise again as soon as loan books expand, then 2026 was a one-off benefit, not a structural change.
For shareholders, the implication is clear, that they should not mistake provision-led profit for core growth, because a profit that rises because provisions fall is fragile, and it can be reversed in one bad quarter, while a profit that rises because net interest income, fees and trading all grow together is durable. The 14.2% rise in combined profit to N5.29 trillion is real cash in the bank, but its quality is lower than the headline suggests, and dividend expectations should therefore be cautious, because banks that pay out provision-led profits as if they were recurring may find themselves short of capital when credit costs normalise. For borrowers, the message is mixed, because lower impairments could mean banks are more willing to lend, as they are less afraid of defaults, but the squeeze on net interest income means banks are also charging more for loans and paying more for deposits, so credit may be available, but it will be expensive, and it will be rationed to the safest borrowers, while small businesses and consumers, who are already facing high rates, may not feel any benefit. For depositors, the picture is also mixed, because interest expense rising 5.1% suggests banks are paying more to keep deposits, especially as they compete with Treasury Bills paying 15.80% stop rate and 18.76% true yield on the 364-day bill, and commercial paper paying 22% to 24%, so depositors are getting better returns, but banks are earning less on the spread, and that tension cannot last forever without one side giving way.
For regulators, the 9M 2026 results raise a supervisory question that goes beyond profit, which is whether the system is building resilience or consuming it, if profits are being supported by lower provisions while operating expenses rise faster than income. The Central Bank will need to look beyond profit and into provision coverage, capital adequacy, and whether banks are using the breathing space from lower impairments to strengthen their balance sheets or to pay out higher dividends, because the history of banking crises is full of periods when falling provisions made banks look healthy just before credit costs rose again. For the economy, the implication is the most serious, because banks are supposed to intermediate, to take savings and channel them into productive investment, and when net interest income falls, operating income is flat, and profit is driven by accounting releases and trading, banks are not intermediating more, they are managing their own balance sheets. That may be necessary in a difficult year, but it does not create jobs, build factories, or fund infrastructure, and it leaves the real economy dependent on expensive government borrowing and expensive commercial paper rather than on bank lending.
The 9M 2026 results are therefore best read as relief, not recovery, as relief that the worst of the credit shock is over, relief that banks can still report profit growth even when their core margins are under pressure, and relief that trading and fees can fill part of the gap, but relief is not the same as recovery. A recovery would be net interest income rising, not falling, operating income growing faster than expenses, not slower, and profit growing because the business is expanding, not because provisions are falling. Nigerian banks have bought themselves time with N906.00 billion of impairment relief, and the critical test in the next two quarters is whether they use that time to rebuild the core, by growing low-cost deposits, lending prudently to productive sectors, controlling costs, and diversifying into stable fee income. If they do, the 9M 2026 profit will be remembered as the turning point, but if they do not, and impairments rise again while margins stay squeezed, the market will realise that 2026 was not a year of strength, but a year when a falling provision masked a shrinking engine.
