Nigeria’s banking sector recorded a rise in bad loans in 2025 following the withdrawal of regulatory forbearance by the Central Bank of Nigeria (CBN), according to the apex bank’s latest macroeconomic outlook report.
The report showed that the industry’s non-performing loans (NPL) ratio rose to an estimated seven per cent, exceeding the prudential benchmark of five per cent. The CBN attributed the increase to the end of temporary relief measures introduced during the COVID-19 pandemic to cushion the impact on borrowers and lenders.
“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.
Under the forbearance regime, banks were allowed to restructure loans affected by the pandemic without immediately classifying them as non-performing. With the withdrawal of the reliefs, several restructured facilities have now crystallised as bad loans, pushing the industry ratio above the regulatory ceiling.
Despite the increase, the CBN said the financial system remained broadly stable in 2025, supported by stronger capital buffers and liquidity positions across the banking sector. The industry liquidity ratio averaged 65 per cent, well above the 30 per cent minimum, while the capital adequacy ratio stood at 11.6 per cent, exceeding the 10 per cent threshold.
According to the apex bank, these indicators show that lenders retain sufficient capacity to absorb shocks. It linked the sector’s resilience to strong interest income, ongoing digital transformation and the ongoing banking recapitalisation programme.
The recapitalisation policy, which significantly raises minimum capital requirements, is expected to strengthen banks’ balance sheets and improve their ability to support the real economy through larger-ticket lending.
The report added that the recapitalisation exercise, alongside macro-prudential guidelines and strengthened regulatory oversight, helped sustain market confidence during the year. It also noted that the capital market remained bullish, partly due to renewed investor interest in the financial sector.
However, the surge in bad loans underscores emerging vulnerabilities, particularly as high interest rates and challenging economic conditions continue to 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.”
The apex bank stressed the need for close monitoring of credit risk and recommended deepening the operational integration of the Global Standing Instruction (GSI) framework across all financial institutions to enhance loan recovery and credit discipline.
It added that improved repayment would support MSME and retail credit performance, reduce operational losses and help banks build stronger capital buffers.
The report also noted that monetary conditions remained tight for most of 2025, as the CBN prioritised price and exchange rate stability. The Monetary Policy Rate, which was raised sharply in 2024, was only eased slightly in September 2025 after signs of improving macroeconomic stability.
Looking ahead, the CBN said the outlook for the banking sector remained positive but cautioned that banks must strengthen risk management, diversify loan portfolios and maintain robust 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 June 2025 circular 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 until they fully exit the forbearance regime.
The CBN said the measures were aimed at strengthening capital buffers and ensuring balance-sheet resilience during the transition period.
Meanwhile, Renaissance Capital, which expressed support for the CBN’s actions, estimated that several banks still have significant forbearance exposures. According to the firm, Zenith Bank, First Bank and Access Bank have forbearance exposures of about 23 per cent, 14 per cent and four per cent of their gross loan books, respectively.
It also estimated forbearance exposures of 10 per cent and eight per cent for Fidelity Bank and FCMB, while Stanbic IBTC and GTCO were said to have zero exposure, with GTCO having fully provisioned and written off its forbearance loans.
In absolute terms, Renaissance Capital estimated forbearance exposures of about $1.6bn for Zenith Bank, $887m for FirstHoldCo, $304m for AccessCorp, $296m for Fidelity Bank, $282m for United Bank for Africa and $134m for FCMB Group. The firm warned that some lenders could breach single obligor limits if the exposures are not adequately managed.
