The Central Bank of Nigeria (CBN) is beginning to withdraw its pandemic-era regulatory forbearance initiatives—a move that signals a return to monetary policy normalcy and presents both challenges and opportunities for financial institutions and investors.
Initially introduced at the height of the COVID-19 crisis, these policies allowed Nigerian banks to restructure loans and grant moratoriums without reclassifying the affected loans as non-performing. These leniencies supported financial system stability during a time of global uncertainty, particularly cushioning sectors like oil & gas.
Now, with macroeconomic conditions showing signs of resilience, the apex bank has disclosed plans to phase out the forbearance support in stages, starting with the power sector. Agriculture is slated to follow, while oil & gas—which remains heavily exposed—will be the last to exit the relief measures.
While the phase-out is designed to be gradual, banks will need to adjust their risk frameworks. Analysts caution that increased provisioning may be necessary, which could impact capital adequacy ratios. Current data reveals that seven major Nigerian banks—ACCESS, FBNH, FCMB, FIDELITY, GTCO, UBA, and ZENITH—collectively hold over $4 billion in forbearance-linked loans. Individual exposure ranges from $60 million to as high as $910 million.
A modest 10% provisioning could reduce CARs by 17 to 394 basis points, though the impact will vary by institution. Notably, banks like GTCO and ZENITH have already begun provisioning proactively, reducing future risks. Even so, if forced to reclassify all affected loans, some institutions—particularly ACCESS—could see their NPL ratios breach the 5% regulatory cap.
Despite these concerns, many banks remain well-capitalized and equipped to handle this transition, with sufficient risk buffers in place. Still, investors should monitor how these changes affect liquidity and actual income performance, since forbearance loans often overstate revenue by accruing interest without cash inflows.
Under IFRS 9 regulations, such loans also necessitate lifetime credit loss recognition, potentially dragging down net asset valuations. Even after accounting for these risks—such as a 10% reduction in book value—Nigerian banks generally appear undervalued, though much will hinge on provisioning strategies and actual recovery rates.
CBN’s move is seen as part of a broader effort to normalize monetary policy and bolster financial discipline. While it may cause temporary headwinds, especially in oil & gas, well-prepared banks with robust provisioning and capital strength are expected to navigate the changes successfully and could become more attractive to investors in the medium to long term.
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