Nigeria’s banking industry recorded a notable increase in bad loans in 2025 following the Central Bank of Nigeria’s decision to fully withdraw the regulatory forbearance measures introduced during the COVID-19 pandemic, according to the apex bank’s latest macroeconomic outlook.
Data contained in the report show that the industry’s Non-Performing Loans (NPL) ratio climbed to an estimated seven per cent, breaching the regulatory ceiling of five per cent set by prudential guidelines. The CBN attributed the deterioration in asset quality largely to the expiration of temporary reliefs that had allowed lenders to restructure distressed loans without immediately recognising them as non-performing.
According to the report, “The Non-Performing Loans ratio stood at an estimated 7.00 per cent, exceeding the prudential limit of 5.00 per cent. This outcome reflects the withdrawal of regulatory forbearance granted to banks during the COVID-19 pandemic.”
The forbearance framework had permitted banks to modify the terms of loans affected by pandemic-related disruptions without triggering adverse classification. With the discontinuation of the policy, several restructured credit facilities have now been reclassified as impaired, pushing industry-wide NPL levels above acceptable thresholds.
Despite the uptick in bad loans, the CBN maintained that Nigeria’s financial system remained broadly resilient throughout 2025. The regulator noted that banks continued to operate with strong liquidity and capital positions, providing a buffer against potential shocks.
Industry liquidity averaged about 65 per cent during the year, significantly above the statutory minimum of 30 per cent. Similarly, the sector’s capital adequacy ratio stood at 11.6 per cent, comfortably exceeding the regulatory benchmark of 10 per cent.
The apex bank said these indicators demonstrate that Nigerian lenders retain sufficient shock-absorption capacity, supported by robust interest income, accelerating digital transformation, and the ongoing banking recapitalisation programme.
The recapitalisation initiative, which substantially raises minimum capital requirements across the industry, is expected to further strengthen balance sheets and expand banks’ capacity to finance large-scale projects within the real economy.
According to the CBN, the recapitalisation exercise—alongside enhanced macro-prudential policies and tighter supervisory oversight—helped sustain market confidence throughout the year. The report also observed that the capital market remained upbeat, partly driven by renewed investor appetite for banking stocks.
However, the regulator cautioned that the rise in non-performing loans exposes emerging vulnerabilities, particularly as elevated interest rates and a challenging macroeconomic environment place pressure on borrowers’ repayment capacity.
The CBN warned that a sustained deterioration in asset quality could weaken banks’ balance sheets and pose systemic risks if left unchecked. It stressed the need for continuous monitoring of credit risk and strict adherence to prudential standards.
To address these risks, the apex bank recommended deeper operational integration of the Global Standing Instruction (GSI) framework across all financial institutions to improve loan recovery efficiency and strengthen credit discipline.
According to the CBN, enhanced enforcement of the GSI system would support better repayment outcomes in the MSME and retail segments, reduce operational losses, and help banks build stronger capital buffers.
The report further revealed that monetary conditions remained tight for most of 2025, reflecting the CBN’s focus on price stability and exchange rate management. Although the Monetary Policy Rate—aggressively tightened in 2024—was marginally eased in September 2025, policy remained restrictive amid improving macroeconomic indicators.
Looking ahead, the apex bank reaffirmed its commitment to safeguarding financial stability through strengthened supervision, sustained use of macro-prudential tools, and expanded implementation of the GSI framework.
The CBN noted that while the sector’s outlook remains positive, banks must continue to enhance risk management practices, diversify loan portfolios, and maintain strong capital positions to withstand future shocks. It added that banking 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 separate regulatory directive issued in June 2025, the CBN instructed banks operating under approved forbearance regimes to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries or offshore ventures.
The circular, signed by the Director of Banking Supervision, Olubukola Akinwunmi, stated that the measures were necessary to strengthen capital buffers and promote prudent internal capital retention during the transition out of forbearance.
The CBN said it had reviewed the capital adequacy and provisioning levels of affected banks, particularly those with exposures linked to credit facilities and Single-Obligor Limits.
“In view of the need to enhance balance sheet resilience and strengthen capital buffers, all banks currently benefiting from regulatory forbearance are hereby directed to suspend dividend payments, defer bonuses to directors and senior management, and refrain from investments in foreign subsidiaries or new offshore ventures,” the circular stated.
The suspension, the bank clarified, would remain in place until the forbearance regime is fully exited and compliance with prevailing capital and provisioning standards is independently verified.
Supporting the CBN’s approach, Renaissance Capital noted in a recent report that several Nigerian lenders still carry significant forbearance exposures. The firm estimated that Zenith Bank, First Bank, and Access Bank have forbearance exposures of approximately 23 per cent, 14 per cent, and four per cent of their respective gross loan books.
The report added that Fidelity Bank and FCMB—classified as top-tier II lenders—have estimated forbearance exposures of 10 per cent and eight per cent, respectively. In contrast, Stanbic IBTC and GTCO were reported to have zero forbearance exposure, with GTCO having fully provisioned and written off its affected loans in the previous year.
In absolute terms, Renaissance Capital estimated regulatory forbearance exposures of about $304 million for AccessCorp, $887 million for FirstHoldCo, $134 million for FCMB Group, $296 million for Fidelity Bank, $282 million for United Bank for Africa, and $1.6 billion for Zenith Bank Plc.
The firm noted that its estimates for most banks were based on recent engagements with management, while Zenith Bank’s figures were derived from its last engagement in December 2024. With these exposures, Renaissance Capital warned that some lenders—including FirstHoldCo, Fidelity Bank, and Zenith Bank—could face potential breaches of Single-Obligor Limits.
