Banks’ Bad Loans Surge as CBN Ends Forbearance

Nigeria’s banking sector recorded a rise in bad loans in 2025 after the Central Bank of Nigeria withdrew the regulatory forbearance granted to lenders during the COVID-19 pandemic, according to the apex bank’s latest macroeconomic outlook report.

The report showed that the banking industry’s Non-Performing Loans ratio climbed to an estimated seven per cent, exceeding the prudential benchmark of five per cent. The CBN said the increase reflected the impact of ending the temporary reliefs earlier granted to banks to cushion the effect of the pandemic on borrowers.

“The Non-performing Loans ratio stood at an estimated 7.00 per cent relative to the prudential limit of 5.00 per cent. The level of NPLs reflected the withdrawal of the regulatory forbearance granted to banks during the COVID-19 pandemic,” the report read.

Regulatory forbearance had allowed banks to restructure loans affected by the pandemic without immediately classifying them as non-performing. With the withdrawal of the measure, a number of previously restructured facilities have now crystallised as bad loans, pushing the industry ratio above the regulatory ceiling.

Despite the increase in bad loans, the CBN stressed that the financial system remained broadly stable in 2025, supported by stronger capital buffers and liquidity positions across the banking sector. The industry liquidity ratio averaged 65 per cent, well above the 30 per cent minimum requirement, while the capital adequacy ratio stood at 11.6 per cent, also above the 10 per cent threshold.

According to the bank, these indicators showed that Nigerian lenders retain the capacity to absorb shocks. The apex bank linked the sector’s resilience to strong interest income, ongoing digital transformation, and the ongoing recapitalisation programme.

The recapitalisation policy, which significantly raises minimum capital requirements for Nigerian banks, is expected to strengthen balance sheets and enhance banks’ ability to support the real sector through bigger-ticket lending.

The report added that the banking recapitalisation exercise, together with macro-prudential guidelines and strengthened regulatory oversight, helped to maintain market confidence during the year.

It also noted that the capital market remained bullish, partly reflecting renewed investor interest in the financial sector. However, the surge in NPLs highlights emerging vulnerabilities, particularly as higher interest rates and challenging economic conditions weigh on some borrowers’ repayment capacity.

The bank warned that a “significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” showing the importance of monitoring credit risk and sustaining prudential discipline.

It also recommended deepening “the operational integration of the GSI framework across all financial institutions to enhance loan recovery efficiency and credit discipline.”

The CBN also recommended strengthening credit discipline and reducing non-performing loans by fully integrating the Global Standing Instruction framework to boost loan recovery efficiency.

It added that improved repayment would enhance MSME and retail credit performance, while helping banks lower operational losses and build stronger capital buffers. The document further revealed that monetary conditions remained tight for most of 2025 as the CBN prioritised price and exchange rate stability.

The Monetary Policy Rate, which had been raised aggressively in 2024, was only eased slightly in September 2025 after signs of economic and price stability strengthened.

The CBN also reaffirmed its commitment to maintaining financial stability through strengthened supervision, continued implementation of macro-prudential tools, and deepening of the Global Standing Instruction framework to enforce loan recovery across the financial system.

Looking ahead, the apex bank said the outlook for the sector remained positive but cautioned that banks must continue to improve risk management practices, diversify loan portfolios, and maintain strong capital positions to guard against future shocks.

It added that the recapitalisation programme, alongside reforms in the foreign exchange market and tax administration, forms part of broader efforts to consolidate macroeconomic stability and boost investor confidence in 2026.

In a circular signed by its Director of Banking Supervision, Olubukola Akinwunmi, in June 2025, the CBN directed banks operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries or offshore ventures.

The CBN said the move was part of its ongoing efforts to strengthen the resilience and stability of the Nigerian banking sector. It has reviewed the capital positions and provisioning adequacy of banks currently operating under approved regulatory forbearance regimes, specifically with credit exposures and Single-Obligor Limits.

The statement read, “In view of the need to strengthen capital buffers, enhance balance resilience and promote prudent internal capital retention during this transitional period, the CBN hereby directs that all banks currently benefiting from credit or SOL forbearance shall suspend the payment of dividends to shareholders, defer the payment of bonuses to directors and senior management staff, and refrain from making investments in foreign subsidiaries or new offshore ventures.

“This temporary suspension is until such a time as the regulatory forbearance is fully exited and the banks’ capital adequacy and provisioning levels are independently verified to be fully compliant with prevailing standards.”

In its report, Renaissance Capital, which expressed support for the CBN’s move, said that based on its estimates, Zenith Bank, First Bank, and Access Bank have significant forbearance exposures of 23 per cent, 14 per cent, and four per cent, respectively, of their gross loan books.

“Similarly, in line with our estimates, Fidelity Bank and FCMB, the two top-tier-II banks, have forbearance exposures of 10 per cent and 8 per cent of their gross loan books, respectively. In contrast, Stanbic IBTC and GTCO have zero per cent forbearance exposure in their gross loans, based on our estimates. GTCO adequately provisioned and wrote off its forbearance exposures last year,” the report added.

In absolute terms, Renaissance Capital said, “We estimate regulatory forbearance exposures at $304m, $887m, $134m, $296m, $282m, and $1.6 billion for AccessCorp, FirstHoldCo, FCMB Group, Fidelity Bank, United Bank for Africa, and Zenith Bank Plc, respectively.”

It added that its estimates for Fidelity Bank, FCMB, Access Corp, GTCO, and UBA were based on recent engagements with management. However, its Zenith Bank estimates are based on our last engagement with management in December 2024.

With this forbearance exposure, it was believed that some of the lenders, FirstHoldCo, Fidelity Bank, and Zenith Bank, could breach their Single Obligor Limits.