Nigeria’s banking sector recorded a sharp rise in bad loans in 2025 following the Central Bank of Nigeria’s (CBN) withdrawal of regulatory forbearance introduced during the COVID-19 pandemic, pushing industry asset quality above the prudential limit.
According to the CBN’s latest Macroeconomic Outlook Report, the Non-Performing Loans (NPL) ratio climbed to an estimated 7 per cent, exceeding the regulatory benchmark of 5 per cent. The apex bank attributed the increase to the reclassification of loans that were previously restructured under pandemic-era reliefs.
“The Non-performing Loans ratio stood at an estimated 7.00 per cent relative to the prudential limit of 5.00 per cent,” the CBN said, noting that the rise reflected the exit from temporary regulatory forbearance granted to banks during the pandemic.
The forbearance had allowed lenders to restructure affected facilities without immediately classifying them as non-performing. With its withdrawal, several of those loans have now crystallised as bad debts, lifting the sector-wide NPL ratio.
Despite the deterioration in asset quality, the CBN maintained that the banking system remained broadly stable in 2025, supported by strong liquidity and capital buffers. Industry liquidity 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 threshold.
The apex bank said these indicators show that Nigerian banks retain sufficient capacity to absorb shocks, citing strong interest income, ongoing digital transformation, and the current recapitalisation programme as key pillars of resilience.
Under the recapitalisation policy, minimum capital requirements for banks are being significantly raised, a move expected to strengthen balance sheets and enhance lenders’ capacity to support the real sector through larger-ticket lending. The CBN added that the exercise, alongside macro-prudential guidelines and tighter supervision, helped sustain market confidence during the year.
The report also noted a bullish capital market, partly driven by renewed investor interest in financial stocks. However, it warned that rising NPLs highlight emerging vulnerabilities, especially amid high interest rates and challenging economic conditions that are straining borrowers’ repayment capacity.
“A significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” the CBN cautioned, underscoring the need for close credit-risk monitoring and sustained prudential discipline.
To curb further deterioration, the bank recommended deeper operational integration of the Global Standing Instruction (GSI) framework across all financial institutions to improve loan recovery and strengthen credit discipline, particularly in the MSME and retail segments.
Monetary conditions remained tight for most of 2025 as the CBN prioritised price and exchange rate stability. The Monetary Policy Rate, which was raised aggressively in 2024, was only marginally eased in September 2025 following signs of improved macroeconomic and price stability.
Looking ahead, the CBN said the sector’s outlook remains positive but stressed that banks must improve risk management, diversify loan portfolios, and maintain strong capital positions to withstand future shocks. It added that banking recapitalisation, foreign exchange market reforms, and improvements in tax administration are central to 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 still operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries or offshore ventures. The directive remains in force until such banks fully exit forbearance and their capital adequacy and provisioning levels are independently verified.
Supporting the CBN’s stance, Renaissance Capital said several lenders still carry significant forbearance exposures. The firm estimated that Zenith Bank, First Bank, and Access Bank have forbearance exposures of 23 per cent, 14 per cent, and 4 per cent of their gross loan books, respectively. Fidelity Bank and FCMB were estimated at 10 per cent and 8 per cent, while Stanbic IBTC and GTCO were said to have zero exposure.
In absolute terms, Renaissance Capital estimated forbearance exposures at $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. It warned that, at these levels, some banks—including FirstHoldCo, Fidelity Bank, and Zenith Bank—could face pressure on their Single Obligor Limits.
While the CBN insists the system remains stable, the surge in bad loans underscores the delicate balance facing Nigerian banks as pandemic-era support unwinds amid a still-fragile economic environment.
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