Explore how the COVID-19 loan impact led to a rise in non-performing loans in Nigeria’s banking sector in 2025.
Nigeria’s banking sector recorded a rise in bad loans in 2025. This occurred after the Central Bank of Nigeria withdrew the regulatory forbearance granted to lenders during the COVID-19 pandemic. This information comes from the apex bank’s latest macroeconomic outlook report.
The report revealed that the Non-Performing Loans ratio in the banking industry rose to approximately seven per cent. This figure exceeds the prudential benchmark of five per cent. The CBN said the increase reflected the impact of ending the temporary reliefs. These reliefs were earlier granted to banks to cushion the effect of the pandemic on borrowers.
“The Non-performing Loans ratio stood at an estimated 7.00 per cent compared to the prudential limit of 5.00 per cent. The level of NPLs increased. This change reflected the withdrawal of the regulatory forbearance granted to banks during the COVID-19 pandemic,” the report read.
Regulatory forbearance had allowed banks to restructure loans affected by the pandemic without quickly classifying them as non-performing. Several earlier restructured facilities have now crystallized as bad loans due to the withdrawal of the measure. This has pushed the industry ratio above the regulatory ceiling.
The CBN acknowledged the increase in bad loans. However, it stressed that the financial system remained broadly stable in 2025. This stability was supported by stronger capital buffers and liquidity positions across the banking sector. The industry liquidity ratio averaged 65 per cent. This is well above the 30 per cent lowest need. The capital adequacy ratio stood at 11.6 per cent, also above the 10 per cent threshold.
According to the bank, these indicators showed that Nigerian lenders retain the capacity to absorb shocks. The apex bank linked the sector’s resilience to strong interest income, ongoing digital transformation, and the ongoing recapitalization programme.
The recapitalization policy significantly raises basic capital requirements for Nigerian banks. This is expected to strengthen balance sheets. It will also enhance banks’ ability to support the real sector through bigger-ticket lending.
The report added that the banking recapitalization exercise helped to preserve market confidence during the year. This was achieved together with macro-prudential guidelines and strengthened regulatory oversight.
It also noted that the capital market remained bullish, partly reflecting renewed investor interest in the financial sector. Nevertheless, the surge in NPLs highlights emerging vulnerabilities. Higher interest rates and challenging economic conditions weigh on some borrowers’ repayment capacity.
The bank warned that a “significant rise in non-performing loans will impair asset quality. It will also weaken banks’ balance sheets, thereby posing systemic risk.” This warning shows the importance of monitoring credit risk and sustaining prudential discipline.
It also recommended deepening the operational integration of the GSI framework. This should occur across all financial institutions. The goal is to enhance loan recovery efficiency and credit discipline.
The CBN also recommended strengthening credit discipline. It advised reducing non-performing loans by fully integrating the Global Standing Instruction framework. This will boost loan recovery efficiency.
It added that improved repayment would enhance MSME and retail credit performance. This improvement would help banks lower operational losses. It would also help banks build stronger capital buffers. The document further revealed that monetary conditions remained tight for most of 2025. The CBN focused on price and exchange rate stability.
The Monetary Policy Rate had been raised aggressively in 2024. It was only eased slightly in September 2025. This change occurred after signs of economic and price stability strengthened.
The CBN also reaffirmed its commitment to maintaining financial stability. It plans to achieve this through strengthened supervision and continued implementation of macro-prudential tools. Additionally, the CBN aims at deepening the Global Standing Instruction framework to enforce loan recovery across the financial system.
Looking ahead, the apex bank said the outlook for the sector remained positive. Nonetheless, it cautioned that banks must continue to improve risk management practices. They should diversify loan portfolios and keep strong capital positions to guard against future shocks.
The recapitalization programme is part of broader efforts. It is alongside reforms in the foreign exchange market and tax administration. These efforts aim to unify macroeconomic stability. They also seek to boost investor confidence in 2026.
In a circular signed by its Director of Banking Supervision, Olubukola Akinwunmi, in June 2025, the CBN issued several directives. It instructed banks operating under regulatory forbearance to suspend dividend payments. They were also told to defer executive bonuses. Additionally, they had to halt investments in foreign subsidiaries or offshore ventures.
The CBN said the move was part of its ongoing efforts. It aims to strengthen the resilience and stability of the Nigerian banking sector. The CBN has reviewed the capital positions and provisioning adequacy of banks. These banks are currently operating under approved regulatory forbearance regimes. This review specifically focuses on credit exposures and Single-Obligor Limits.
The statement read, “The CBN recognizes the need to strengthen capital buffers. Consequently, it directs banks benefiting from credit or SOL forbearance to suspend dividend payments to shareholders. The aim is to enhance balance, resilience and promote prudent internal capital retention.
This measure is crucial during this transitional period.” The CBN recognizes the need to strengthen capital buffers. Thus, it directs banks benefiting from credit or SOL forbearance to suspend dividend payments to shareholders.
The aim is to enhance balance, resilience and promote prudent internal capital retention. This measure is crucial during this transitional period. They must also defer the payment of bonuses to directors and senior management staff. Additionally, they should refrain from making investments in foreign subsidiaries or new offshore ventures.”
“This temporary suspension is in place until the regulatory forbearance is fully exited. The banks’ capital adequacy and provisioning levels need to be independently verified as fully compliant with prevailing standards.”
In its report, Renaissance Capital expressed support for the CBN’s move. It stated that based on its estimates, Zenith Bank, First Bank, and Access Bank have significant forbearance exposures. The exposures are 23 per cent, 14 per cent, and four per cent of their gross loan books, respectively.
“Fidelity Bank has a forbearance exposure of 10 per cent of its gross loan book. This is in line with our estimates. FCMB has a forbearance exposure of 8 per cent of its gross loan book. They are the two top-tier-II banks. 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,” the report added.
In absolute terms, Renaissance Capital said, “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 added that its estimates for Fidelity Bank, FCMB, Access Corp, GTCO, and UBA were derived from recent engagements. These estimates were based on discussions with management. Its assessments were informed by these discussions. However, its Zenith Bank estimates are based on our last engagement with management in December 2024.
