Nigeria’s banking sector recorded an increase in bad loans in 2025 following the withdrawal of regulatory forbearance granted by the Central Bank of Nigeria to lenders 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 ratio rose to an estimated seven per cent, exceeding the prudential benchmark of five per cent. The CBN explained that the increase was largely due to the termination of temporary relief measures introduced to cushion the pandemic’s impact 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 stated.
During the pandemic, regulatory forbearance allowed banks to restructure affected loans without immediately classifying them as non-performing. With the withdrawal of this relief, several restructured facilities have now crystallised as bad loans, pushing the industry’s NPL ratio above the regulatory ceiling.
Despite the rise in non-performing loans, the CBN emphasised that the financial system remained broadly stable in 2025. It attributed this stability to stronger capital buffers and robust liquidity positions across the banking sector.
According to the report, the industry liquidity ratio averaged 65 per cent during the year, well above the 30 per cent minimum requirement, while the capital adequacy ratio stood at 11.6 per cent, exceeding the 10 per cent regulatory threshold.
The apex bank noted that these indicators showed Nigerian lenders retained sufficient capacity to absorb shocks. It linked the sector’s resilience to strong interest income, ongoing digital transformation efforts, and the implementation of the banking sector recapitalisation programme.
The recapitalisation policy, which significantly increases minimum capital requirements for Nigerian banks, is expected to strengthen balance sheets and improve lenders’ capacity to support the real sector through larger-ticket lending.
The report added that the recapitalisation exercise, alongside macro-prudential guidelines and strengthened regulatory oversight, helped sustain market confidence throughout the year.
It also observed that the capital market remained bullish, partly driven by renewed investor interest in the financial sector. However, it cautioned that the surge in non-performing loans highlights emerging vulnerabilities, especially as higher interest rates and challenging economic conditions strain borrowers’ repayment capacity.
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 importance of sustained credit risk monitoring and strict prudential discipline.
To address the challenge, the apex bank recommended deepening “the operational integration of the GSI framework across all financial institutions to enhance loan recovery efficiency and credit discipline.”
It further advised that strengthening credit discipline through full integration of the Global Standing Instruction framework would help reduce non-performing loans and improve recovery outcomes.
According to the bank, improved repayment behaviour would enhance MSME and retail credit performance, while enabling banks to lower operational losses and build stronger capital buffers.
The report also disclosed that monetary conditions remained tight for most of 2025, as the CBN prioritised price stability and exchange rate stability.
The Monetary Policy Rate, which was raised aggressively in 2024, was only marginally eased in September 2025 after indicators of economic and price stability strengthened.
The CBN reaffirmed its commitment to safeguarding financial stability through enhanced supervision, continued implementation of macro-prudential tools, and deeper application of the Global Standing Instruction framework to enforce loan recovery across the financial system.
Looking ahead, the apex bank stated that the outlook for the banking sector remained positive but cautioned that banks must continue to strengthen risk management practices, diversify loan portfolios, and maintain strong capital positions to withstand 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 issued in June 2025 and 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 CBN explained that the directive was part of its efforts to strengthen the resilience and stability of the Nigerian banking sector, following a review of the capital positions and provisioning adequacy of banks benefiting from regulatory forbearance, particularly those with significant 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 a separate report, Renaissance Capital expressed support for the CBN’s decision, stating that based on its estimates, Zenith Bank, First Bank, and Access Bank have forbearance exposures of 23 per cent, 14 per cent, and four per cent respectively of their gross loan books.
The firm added, “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.”
In absolute terms, Renaissance Capital stated, “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 noted that its estimates for Fidelity Bank, FCMB, AccessCorp, GTCO, and UBA were based on recent engagements with management, while its estimates for Zenith Bank were based on its last engagement with management in December 2024.
With these levels of forbearance exposure, it was believed that some lenders, including FirstHoldCo, Fidelity Bank, and Zenith Bank, could potentially breach their Single Obligor Limits.
