Nigerian banks are bracing for tighter profitability, reduced capital buffers, and a possible rise in non-performing loans (NPLs) as the Central Bank of Nigeria (CBN) begins to unwind COVID-era regulatory forbearance policies.
In a circular issued Friday, the apex bank directed all banks that benefited from credit-related forbearance or breaches of Single Obligor Limits to suspend dividend payouts, defer executive bonuses, and halt new offshore investments.
The move signals a significant policy shift, coming at a time when Nigerian lenders are already absorbing heavy loan losses linked to economic volatility and foreign exchange disruptions.
Loan Losses Surge Across the Sector
According to Nairametrics research, ten publicly listed banks booked a combined ₦3.77 trillion in loan impairment charges between 2023 and Q1 2025—up from ₦1.34 trillion in 2023 to ₦2.13 trillion in 2024. An additional ₦297 billion was recorded in the first quarter of 2025 alone.
The unwinding of forbearance could further strain banks’ earnings and capital adequacy, especially for those most exposed to restructured or “forborne” loans in sectors like oil and gas.
The End of Regulatory Relief
The CBN introduced regulatory forbearance in March 2020 to cushion the impact of the pandemic, allowing banks to restructure loans to high-risk sectors without classifying them as impaired.
According to Renaissance Capital, the policy helped keep the industry’s NPL ratio at 4.3%—below the 5% regulatory ceiling—despite economic headwinds. But with Nigeria gradually recovering and policy conditions shifting, the CBN is rolling back the relief measures.
Banks Holding the Most Forborne Loans
Renaissance Capital estimates that seven leading banks collectively hold $4 billion in restructured loans:
- Zenith Bank – $910 million
- FBN Holdings – $848 million
- UBA – $771 million
- Access Bank – $535 million
- Fidelity Bank – $556 million
- FCMB – $332 million
- GTCO – $60 million
These loans are largely classified as Stage 2 under IFRS 9—signifying increased credit risk, though not yet non-performing.
Capital Buffers Under Pressure
The phased withdrawal of forbearance is expected to weigh heavily on capital adequacy ratios (CAR). Under a base-case scenario, where banks take a 10% equity hit on forborne loans, CAR declines are projected as follows:
- Fidelity Bank: -394bps
- FBN Holdings: -149bps
- Zenith Bank: -128bps
- FCMB: -198bps
While GTCO has proactively provisioned 80% of its forbearance exposure and Zenith Bank 20%, others appear less prepared. Notably, FBNH’s largest exposure—oil firm Aiteo—has resumed interest payments, but principal repayment remains uncertain.
Worst-Case: Rising NPL Ratios
Should banks be forced to reclassify these loans as non-performing, NPL ratios could breach CBN thresholds. Projections show:
- FCMB: 7.2% (from 5.4%)
- UBA: 7.1% (from 6.4%)
- Zenith Bank: 6.7% (from 4.6%)
- FBN Holdings: 6.2% (from 4.8%)
Only GTCO and Access Bank are projected to stay below the 5% regulatory ceiling in this scenario.
Are Banks Ready? A Look at Loan Loss Buffers
Despite the looming challenges, many banks remain well-cushioned by their Non-Performing Loan (NPL) coverage ratios, which measure how much provision is held against bad loans:
- Zenith Bank: 298.4%
- GTCO: 138.7%
- Fidelity Bank: 138.4%
- Stanbic IBTC and Access Bank: Over 110%
- UBA: 80.9%
- FBN Holdings: 52.4%
UBA and FBNH, with relatively lower coverage ratios, may need to bolster provisions to shield against potential shocks, especially if macroeconomic conditions worsen.
Outlook: Profitability at Risk, but Systemic Stability Intact
The CBN’s policy reversal marks a turning point for Nigerian banks, many of which had relied on pandemic-era relief to stabilize balance sheets. While stronger banks appear positioned to absorb the impact, those with higher exposure to restructured loans or weaker buffers may face earnings pressure and constrained dividend policies in the short term.
Nonetheless, analysts believe that with high coverage ratios and proactive provisioning by Tier-1 institutions, systemic risk remains contained—at least for now.
