Bad loans in Nigeria’s banking sector increased to 8.03 per cent in January 2026, seven months after the Central Bank of Nigeria began winding down regulatory forbearance granted to banks on certain credit exposures and breaches of single obligor limits.

The PUNCH reported that according to the CBN’s January 2026 Economic Report, the industry’s non-performing loans ratio rose by 0.52 percentage points from 7.51 per cent recorded in December 2025.

The figure remained significantly above the apex bank’s prudential threshold of five per cent, highlighting a further deterioration in asset quality across the banking sector despite assurances from the regulator that the financial system remains stable and resilient.

The report stated, “Following the bank’s loan reclassification after the withdrawal of forbearance, the non-performing loans ratio rose by 0.52 percentage point to 8.03 per cent compared with the level in the preceding period and was above the 5.00 per cent prudential threshold.”

The increase followed a June 2025 directive by the CBN requiring banks still benefiting from regulatory forbearance on credit exposures or single obligor limit waivers to suspend dividend payments, defer bonuses for directors and senior management, and halt new investments in foreign subsidiaries and offshore ventures.

The apex bank explained that the measures were introduced to strengthen capital buffers, improve balance-sheet resilience and compel affected banks to retain earnings while transitioning out of temporary regulatory relief programmes.

As part of broader reforms, the CBN also terminated COVID-19-related regulatory forbearance and waivers on single obligor limits with effect from June 30, 2025. Banks were subsequently directed to align all affected credit exposures with existing prudential regulations.

The regulatory forbearance framework had enabled banks to restructure loans affected by the COVID-19 pandemic without immediately classifying them as non-performing. However, with the withdrawal of those concessions, several previously restructured facilities have now been recognised as bad loans, pushing the industry’s NPL ratio above the regulatory ceiling.

The latest NPL figures indicate that the clean-up exercise is exposing weaker loan assets that had previously been protected by regulatory reliefs. Following their reclassification, banks were required to recognise more credit weaknesses in their loan books, leading to a further rise in the sector’s bad loan ratio.

In its macroeconomic outlook report, the CBN warned that a “significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” underscoring the need for sustained credit-risk monitoring and adherence to prudential standards.

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

The apex bank further advocated full integration of the Global Standing Instruction (GSI) framework across the financial system as part of efforts to improve loan recovery processes, strengthen credit discipline and reduce the incidence of bad loans.

Earlier in February 2025, the CBN ordered bank directors with non-performing insider-related loans to resign from their positions immediately. Insider loans are credit facilities granted by banks to their executives, directors, employees, major shareholders or related entities.

According to the regulator, the directive was aimed at strengthening corporate governance and improving risk management within the banking sector. Banks were also instructed to recover the affected debts through collateral enforcement and seize the shareholdings of directors involved.

“Directors with non-performing insider-related facilities are required to step down immediately from the board, while the bank should commence immediate remediation of the loans through the recovery of the collateral, including the shareholdings of the affected directors,” the circular read.

In a more recent move, the CBN directed banks to deny certain banking services and additional credit facilities to major borrowers with non-performing loans. The directive was contained in a letter dated March 12, 2026, signed by the Director of Banking Supervision, Dr. Muhammad Abdullahi.

Under the new directive, borrowers whose facilities have been classified as non-performing and recorded in the Credit Risk Management System (CRMS) or any licensed private credit bureau are no longer eligible to obtain additional credit from banks.

The apex bank said the measure was intended to mitigate risks associated with large borrowers whose defaults could threaten the stability of the financial system.

“Effective immediately, all financial institutions shall: Restrict further credit access: Any large-ticket obligor with a non-performing facility recorded in the CRMS and/or any licensed private credit bureau shall not be granted additional credit facilities.

“For the purpose of this restriction, credit facilities include loans and other forms of direct credit. In addition, such obligors shall not be granted banking facilities or contingent liabilities such as bankers’ confirmations, letters of credit, performance bonds, or advance payment guarantees,” the bank said.

The CBN explained that the restrictions apply to large-ticket obligors as defined under prudential guidelines for deposit money banks. These include individuals or corporate entities whose combined exposure across banks exceeds the Single Obligor Limit or whose obligations could significantly affect a bank’s capital adequacy ratio.

Financial institutions were also directed to obtain additional realisable collateral from affected borrowers to adequately secure existing credit exposures. The determination of affected obligors will be based on information available in the CRMS and reports from licensed private credit bureaus.

Despite the deterioration in asset quality, the apex bank maintained that the overall banking system remains stable.

According to the report, the industry’s liquidity ratio improved to 63.38 per cent in January 2026 from 57.22 per cent in December 2025, remaining comfortably above the 30 per cent prudential minimum.

The capital adequacy ratio stood at 12.05 per cent, slightly lower than the 12.35 per cent recorded in December, but still above the regulatory minimum requirement of 10 per cent.

According to the CBN, “The Nigerian banking industry remained resilient, with most financial soundness indicators staying within prudential regulatory thresholds, affirming financial stability and institutional soundness.”

The latest figures present a mixed outlook for the banking sector. While liquidity remains robust and capital levels are above regulatory requirements, the increase in bad loans reflects pressures arising from legacy credit exposures, currency depreciation, high interest rates and stricter loan classification standards.

Concerns over the worsening quality of banking assets were also raised during the February 2026 meeting of the Monetary Policy Committee (MPC), where members warned that rising non-performing loans could threaten financial stability despite broader improvements in macroeconomic conditions.

The CBN’s Deputy Governor for Economic Policy, Dr Muhammad Abdullahi, identified rising bad loans as a major risk to the financial system, warning that they could weaken the effectiveness of monetary policy transmission if not properly addressed.

“Additionally, rising NPLs could pose financial stability risks, and the broader macroeconomy needs to rebalance growth and stability objectives,” Abdullahi said.

He noted that the challenge was occurring alongside persistent excess liquidity within the banking system, cautioning that both factors could undermine monetary policy effectiveness and restrict the efficient flow of credit to productive sectors of the economy.

MPC member and corporate governance expert Aku Odinkemelu also expressed concern over the trend, stressing the need for stronger regulatory oversight.

“The increase in Non-Performing Loans within the banking system… underscores the need for heightened supervisory vigilance to safeguard asset quality and ensure effective credit transmission,” Odinkemelu said.

The comments reflect growing regulatory concern over the quality of loan assets within the banking industry, even as the sector remains broadly resilient. Regulators are increasingly focused on ensuring stronger credit discipline and maintaining asset quality as banks adjust to stricter prudential requirements following the withdrawal of regulatory forbearance.