Banks Face Surge in Bad Loans After CBN Ends Relief Measures

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Rise in Non-Performing Loans in Nigeria’s Banking Sector

Nigeria’s banking sector experienced a notable increase in non-performing loans (NPLs) in 2025, as the Central Bank of Nigeria (CBN) ended the regulatory forbearance that had been extended to lenders during the COVID-19 pandemic. This decision led to a rise in bad loans, with the NPL ratio climbing to an estimated 7%, surpassing the prudential limit of 5%. The CBN attributed this increase to the withdrawal of temporary relief measures that had allowed banks to restructure loans without classifying them as non-performing.

The regulatory forbearance had provided a buffer for borrowers affected by the pandemic, allowing banks to delay the classification of problematic loans. However, once this measure was lifted, many previously restructured loans were reclassified as non-performing, contributing to the overall rise in NPLs. Despite this challenge, the CBN emphasized that the financial system remained broadly stable in 2025, supported by strong capital buffers and liquidity positions across the banking sector.

Key Financial Indicators and Resilience

The industry’s liquidity ratio averaged 65% in 2025, significantly above the minimum requirement of 30%, while the capital adequacy ratio stood at 11.6%, exceeding the 10% threshold. These figures indicate that Nigerian banks have the capacity to absorb shocks and maintain stability. The CBN linked this resilience to several factors, including strong interest income, ongoing digital transformation, and the implementation of a recapitalisation programme aimed at strengthening bank balance sheets.

The recapitalisation policy, which increases minimum capital requirements for banks, is expected to enhance their ability to support the real economy through larger lending activities. In addition, macro-prudential guidelines and strengthened regulatory oversight have contributed to maintaining market confidence. The capital market also showed signs of optimism, driven by renewed investor interest in the financial sector.

Emerging Vulnerabilities and Risk Management

However, the surge in NPLs has highlighted emerging vulnerabilities within the sector. Higher interest rates and challenging economic conditions have put pressure on some borrowers’ repayment capacity. The CBN warned that a significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, potentially posing systemic risks. To mitigate these risks, the CBN recommended deepening the operational integration of the Global Standing Instruction (GSI) framework across all financial institutions. This initiative aims to improve loan recovery efficiency and enforce better credit discipline.

The CBN also urged banks to strengthen credit discipline and reduce non-performing loans by fully integrating the GSI framework. Improved repayment practices are expected to enhance performance in small and medium enterprise (MSME) and retail credit segments, while helping banks reduce operational losses and build stronger capital buffers.

Monetary Policy and Regulatory Measures

Monetary conditions remained tight throughout most of 2025, as the CBN prioritized price and exchange rate stability. The Monetary Policy Rate, which had been raised aggressively in 2024, saw only a slight easing in September 2025 after signs of economic and price stability emerged. The CBN reaffirmed its commitment to maintaining financial stability through strengthened supervision, continued implementation of macro-prudential tools, and deepening of the GSI framework to enforce loan recovery across the financial system.

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

Regulatory Actions and Bank Compliance

In June 2025, the CBN issued a circular directing banks operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries or offshore ventures. This move was intended to strengthen the resilience and stability of the Nigerian banking sector. The CBN reviewed the capital positions and provisioning adequacy of banks currently benefiting from approved regulatory forbearance regimes, particularly those with credit exposures and Single-Obligor Limits (SOL).

The directive stated that banks under forbearance should suspend dividend payments, defer bonuses for directors and senior management, and refrain from making new foreign investments until they meet capital adequacy and provisioning standards. This temporary suspension aims to ensure that banks retain sufficient capital to navigate the transition period effectively.

Forbearance Exposures and Sector Implications

Renaissance Capital, in its report, noted that several major banks had significant forbearance exposures. Zenith Bank, First Bank, and Access Bank had forbearance exposures of 23%, 14%, and 4%, respectively, of their gross loan books. Fidelity Bank and FCMB, two top-tier-II banks, had exposures of 10% and 8%, while Stanbic IBTC and GTCO had zero per cent exposure. GTCO had already adequately provisioned and written off its forbearance exposures in the previous year.

In absolute terms, Renaissance Capital estimated regulatory forbearance exposures for several banks, including $304m for AccessCorp, $887m for FirstHoldCo, $134m for FCMB Group, $296m for Fidelity Bank, $282m for United Bank for Africa, and $1.6 billion for Zenith Bank Plc. These figures suggest that some lenders, such as FirstHoldCo, Fidelity Bank, and Zenith Bank, may breach their Single Obligor Limits.