Nigeria’s banking industry recorded a notable deterioration in asset quality in 2025 after the Central Bank of Nigeria (CBN) withdrew regulatory forbearance introduced during the COVID-19 pandemic, with non-performing loans (NPLs now exceeding the prudential ceiling.
According to the CBN’s latest macroeconomic outlook report, the industry’s NPL ratio rose to an estimated seven per cent, above the regulatory benchmark of five per cent. The apex bank said the increase largely reflected the impact of ending temporary reliefs that had allowed lenders to restructure pandemic-hit 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.
During the pandemic, banks were permitted to reschedule affected facilities without immediate impairment. With the forbearance regime now unwound, several restructured loans have crystallised as bad debts, pushing the industry ratio beyond the regulatory threshold.
Despite the rise in bad loans, the CBN maintained that the financial system remained broadly stable in 2025. The report showed that the banking sector’s 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, exceeding the 10 per cent benchmark.
The apex bank said these indicators suggest that Nigerian lenders still have sufficient buffers to absorb shocks, citing strong interest income, expanding digital banking operations, and the ongoing recapitalisation programme as key support factors.
The recapitalisation policy, which significantly raises minimum capital requirements for banks, is expected to strengthen balance sheets and improve lenders’ capacity to fund larger transactions in the real economy.
The CBN also noted that the recapitalisation exercise, together with tighter macro-prudential regulation and stronger supervisory oversight, helped sustain market confidence in 2025. It added that the capital market remained bullish, partly driven by renewed investor interest in banking stocks.
However, the apex bank cautioned that the rise in NPLs underscores growing vulnerabilities in the sector, particularly as high interest rates and difficult economic conditions continue to strain borrowers’ repayment capacity.
It warned that a “significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” stressing the need for closer credit risk monitoring and sustained prudential discipline.
To address the challenge, the CBN recommended deeper integration of the Global Standing Instruction (GSI) framework across all financial institutions to strengthen loan recovery and enforce credit discipline. Improved recovery performance, it said, would support MSME and retail lending, reduce operational losses, and help banks build stronger capital buffers.
The report added that monetary conditions remained tight for most of 2025 as the CBN prioritised price stability and exchange-rate management. The Monetary Policy Rate, which was raised aggressively in 2024, was only marginally eased in September 2025 after signs of macroeconomic and price stability improved.
Looking ahead, the apex bank said the outlook for the banking sector remains positive but warned that lenders must strengthen risk management practices, diversify loan portfolios, and maintain strong capital positions to withstand future shocks. It added that recapitalisation, 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 related regulatory move, the CBN in June 2025 directed banks still operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries or new offshore ventures. The directive, signed by the Director of Banking Supervision, Olubukola Akinwunmi, followed a review of banks’ capital positions and provisioning adequacy, particularly those with credit and single-obligor limit exposures.
The CBN said the measures were temporary and aimed at strengthening capital buffers and promoting prudent capital retention until forbearance is fully exited and compliance independently verified.
Supporting the regulator’s stance, Renaissance Capital disclosed that several major lenders still have sizeable forbearance exposure. 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 of their gross loan books, respectively. Fidelity Bank and FCMB were estimated at 10 per cent and eight per cent, while Stanbic IBTC and GTCO were said to have zero exposure, with GTCO having fully provisioned for and written off its forbearance loans.
In absolute terms, Renaissance Capital estimated forbearance exposures of $304 million for AccessCorp, $887 million for FirstHoldCo, $134 million for FCMB Group, $296 million for Fidelity Bank, $282 million for UBA, and $1.6 billion for Zenith Bank Plc.
The firm warned that given the size of these exposures, some lenders, including FirstHoldCo, Fidelity Bank and Zenith Bank, could face pressure on their single obligor limits as the impact of the forbearance exit continues to filter through the banking system.
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