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Nigeria’s banking sector recorded a notable increase in bad loans in 2025 following the Central Bank of Nigeria’s (CBN) withdrawal of regulatory forbearance introduced during the COVID-19 pandemic, according to the apex bank’s latest Macroeconomic Outlook Report.
The report revealed that the industry’s Non-Performing Loans (NPL) ratio rose to an estimated 7.0 per cent, exceeding the prudential benchmark of 5.0 per cent. The CBN attributed the increase largely to the expiration of temporary relief measures that had allowed banks to restructure pandemic-affected loans without classifying them as non-performing.
“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 stated.
Impact of Forbearance Withdrawal
Under the forbearance regime, banks were permitted to restructure distressed facilities without immediate negative classification. With the withdrawal of the policy, several restructured loans have now crystallised as bad loans, pushing the industry’s NPL ratio above the regulatory ceiling.
Banking System Remains Resilient
Despite the uptick in bad loans, the CBN stressed that the Nigerian financial system remained broadly stable throughout 2025. The sector continued to benefit from strong capital buffers and ample liquidity.
- Liquidity ratio: Averaged 65 per cent, well above the 30 per cent minimum requirement
- Capital adequacy ratio (CAR): Stood at 11.6 per cent, exceeding the 10 per cent regulatory threshold
According to the CBN, these indicators demonstrate that Nigerian banks retain sufficient capacity to absorb shocks. The regulator linked the sector’s resilience to robust interest income, accelerating digital transformation, and the ongoing banking recapitalisation programme.
Recapitalisation and Market Confidence
The recapitalisation policy—designed to significantly raise minimum capital requirements—is expected to strengthen banks’ balance sheets and enhance their capacity to support the real sector through larger-ticket lending.
The CBN noted that the recapitalisation exercise, alongside strengthened regulatory oversight and macro-prudential guidelines, helped sustain market confidence in 2025. The capital market also remained bullish, partly driven by renewed investor interest in financial stocks.
However, the regulator cautioned that the rise in NPLs highlights emerging vulnerabilities, particularly as high interest rates and challenging economic conditions strain 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.”
Strengthening Credit Discipline
To address rising credit risks, the CBN recommended deepening the operational integration of the Global Standing Instruction (GSI) framework across all financial institutions to enhance loan recovery efficiency and credit discipline.
According to the report, improved repayment performance would boost MSME and retail credit, reduce operational losses, and help banks build stronger capital buffers.
Monetary Policy and Outlook
Monetary conditions remained tight for most of 2025, as the CBN prioritised price and exchange rate stability. The Monetary Policy Rate (MPR)—raised aggressively in 2024—was eased slightly in September 2025 after signs of improved macroeconomic and price stability.
Looking ahead, the CBN said the sector’s outlook remains positive but warned that banks must continue to strengthen risk management, diversify loan portfolios, and maintain strong capital positions to guard against future shocks.
The apex bank 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.
Dividend, Bonus Restrictions for Affected Banks
In a June 2025 circular signed by the Director of Banking Supervision, Olubukola Akinwunmi, 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 directive followed a review of capital positions and provisioning adequacy of banks benefiting from credit and Single-Obligor Limit (SOL) forbearance.
“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,” the CBN said.
Forbearance Exposure Across Banks
In a separate report, Renaissance Capital expressed support for the CBN’s move, estimating significant forbearance exposures among some major lenders:
- Zenith Bank: 23% of gross loans
- First Bank: 14%
- Access Bank: 4%
Among Tier-II banks:
- Fidelity Bank: 10%
- FCMB: 8%
By contrast, Stanbic IBTC and GTCO were estimated to have zero forbearance exposure, with GTCO having fully provisioned and written off such exposures in 2024.
In absolute terms, Renaissance Capital estimated regulatory forbearance exposures at:
- $1.6bn – Zenith Bank
- $887m – FirstHoldCo
- $304m – AccessCorp
- $296m – Fidelity Bank
- $282m – UBA
- $134m – FCMB Group
The firm noted that some lenders—particularly FirstHoldCo, Fidelity Bank, and Zenith Bank—could potentially breach their Single-Obligor Limits due to the size of their forbearance exposures.
