Nigeria’s banking sector is increasingly being positioned by market analysts as the most compelling investment opportunity in the equity market in 2026, according to most analysts’ views sampled by Nairametrics.
The analysts led by Mr. Tajudeen Olayinka, cited stronger capital buffers, macroeconomic stabilisation and expectations of regulatory clarity from the Central Bank of Nigeria (CBN) as potential drivers.
However, lingering uncertainty around recapitalisation outcomes, dividend sustainability and proposed tax reforms continues to temper investor enthusiasm.
What the stockbrokers are saying
Leading the strong optimism about banking stocks in 2026, Olayinka, the Chief Executive Officer of Wyoming Capital & Partners Limited, said the ongoing recapitalisation exercise has fundamentally strengthened banks’ balance sheets, enhancing their capacity to expand credit and mobilise deposits across the economy.
He said the capital injections, though dilutive in the short term, have repositioned banks for long-term growth as economic conditions improve.
“The business of a bank is asset creation and liability generation, and the economy is now in a better position to support that,” Olayinka said, noting that Nigeria has moved past the worst of the post-reform economic dislocation experienced in 2023.
Olayinka and his professional colleagues argued that fears over share dilution are overstated, pointing out that some banks that completed capital raising early were still able to pay dividends on newly issued shares at levels higher than previous years.
He explained that the scale of equity issuance was largely a consequence of the CBN’s recapitalisation framework, which recognises only paid-up capital and share premium—excluding reserves—thereby forcing even fundamentally strong banks to raise equity at depressed market valuations.
As a result, many banking stocks are now trading at deep discounts to book value, creating what he described as a rare mispricing opportunity.
Wait-and-see mood dominates as investors eye dividends, CBN signal
Despite this optimism, other market operators urge caution. Mallam Garba Kurfi, Chief Executive Officer of APT Securities & Funds Ltd, said investors remain firmly in “wait-and-see” mode following the release of banks’ management accounts.
He noted that weak interim dividend payouts—notably lower than prior-year levels—have heightened scepticism, especially against the backdrop of recapitalisation uncertainty and recent regulatory actions against institutions such as Aso Savings & Loans and Union Homes.
Kurfi stressed that until the CBN formally announces which banks have fully met recapitalisation requirements, claims by individual lenders remain speculative.
“That announcement will determine the direction of banking stocks,” he said.
He also highlighted a structural constraint limiting upside potential: the sheer size of banks’ outstanding shares, often between 40 billion and 50 billion units, which makes sharp price appreciation unlikely when compared with companies like Seplat Energy or Nestlé Nigeria, whose smaller share bases support higher nominal prices.
As a result, Kurfi believes banking stocks will need strong dividend payouts to justify current valuations.
Any regulatory restrictions on dividends could cap prices or trigger pullbacks, especially as some investors—having recorded gains of over 100% in certain names—may opt to take profit.
While he acknowledged selective opportunities in low-priced stocks such as Jaiz Bank, which has gained about 40–50 per cent since January, he does not expect broad-based rallies without clearer regulatory and earnings signals.
Tax policy emerges as a new risk to equity upside
Beyond sector-specific issues, analysts warn that broader policy risks could influence how much upside banking stocks—and the equity market more broadly—can deliver in 2026.
Dr. Muda Yusuf, Convener of the Centre for the Promotion of Public Enterprise (CPPE), has cautioned that the proposed increase in capital gains tax from 10% to 30% could significantly dampen investor confidence, particularly among large institutional investors who dominate equity market liquidity.
While Yusuf acknowledged that Nigeria’s growth outlook remains positive and that interest rates could moderate in 2026—making equities more attractive relative to fixed income—he warned that sharply higher taxes could undermine market momentum just as confidence is rebuilding.
“Slamming institutional investors with such a sharp tax increase is a major concern,” he said, noting that the full impact would only become clear once implementation begins.
Taken together, analysts agree that Nigeria’s banking sector stands at a critical inflection point. Stronger capital positions and macroeconomic stabilisation have laid the groundwork for potential repricing, positioning banks as a lagging but high-upside segment of the equity market.
Yet, the pace and scale of gains in 2026 will ultimately depend on three decisive factors: regulatory clarity from the CBN, dividend outcomes for the 2025 financial year, and the policy environment—particularly taxation—that shapes investor appetite across the broader market.
Backstory
Nigerian banking stocks posted subdued returns in 2025.
- The CBN ended pandemic-era forbearance measures, compelling banks to recognise previously deferred impairments and tighten provisioning.
- This has led to higher provisioning seen in earnings releases, putting a drag on the bottom line of most banks.
- Lower-than-expected dividend payouts also contributed to investor sentiment towards the sector, essentially leading to the sector underperforming the broader index in 2025.
- The ongoing recapitalisation drive, with compliance due by March 2026, led to a series of capital market activities ranging from right issues to public offers.
We believe the sector is well positioned to become a major driver of growth in 2026 as macroeconomic stability gradually returns, said analysts at Coronation Merchant Bank.
