Low oil prices, downward pressure on the Nigerian naira, and the delayed presidential election - all raise credit risk and reduce growth opportunities for the country's banks, according to Standard & Poor's Ratings Services.

In its latest report titled “Nigerian Banks Face Rising Uncertainties In 2015”, S&P said that 2015 will pose some stiff challenges for the sector.

Among the forces raising credit risks and reducing growth opportunities for the country's banks are the recent collapse of world oil prices and mounting weakness for Nigeria's currency, said S&P.

“In addition, political uncertainty is high because presidential elections have been delayed owing to the fight against Boko Haram insurgents that keeps many Nigerians on edge,” said S&P.

However, according to the report, other conditions somewhat counterbalance these negative trends.

Banks now have largely clean balance sheets, partly due to the actions taken by Asset Management Corporation of Nigeria (AMCON), and they now have improved regulatory oversight and better risk management than during the crisis period.

“Banks are entering 2015 with stronger balance sheets and improved risk management compared with 2009 and its dramatic banking crisis. We consider a 2009-style asset quality problem as highly unlikely despite the difficult conditions this year,” the agency said.

S&P’s outlook for Nigerian banks is generally negative, reflecting the combined pressures the rating agency expects in 2015 on capitalization, earnings, and asset quality.

S&P said regulation and competition have reduced banks' earnings buffers, and capitalization for some banks is tight.

Some of the banks are considering acquisitions, which might create problems for their capitalization, while others already need capital injections in the near future, at a time when “capital raising could be difficult given the current market setting”.

S&P believes top-tier banks will fare comparatively better in 2015 than the second tier.

“We consider banks with larger capital cushions and a history of low credit losses to be more resilient and able to weather the current climate. Given the strong competitive, regulatory, and economic pressures, we continue to believe first-tier Nigerian banks are better placed to maintain profitability through periods of shocks,” said S&P.

“Underpinning our assumptions are their access to low-cost funds, their well-established corporate franchises, and stronger underwriting skills, which enable them to make better loans and operate with more stable credit losses and stronger margins.”