Most Nigerian banks are on track to exit a prolonged period of regulatory forbearance by the close of 2025, despite challenges from the reclassification of some large Stage 2 loans as impaired, according to a new Fitch Ratings analysis of the nation’s leading financial institutions.
The Nigerian banking sector faces stringent regulations, with high inflation and interest rates expected to persist in the near term. The expiration of system-wide forbearance by mid-2025 is likely to increase impaired loan ratios and strain capital adequacy ratios across the industry. However, banks are preparing through measures like loan restructuring, significant capital raises driven by new paid-in capital requirements, and improved net interest margins that enhance loss-absorption capacity.
Fitch Ratings indicates that these steps will mitigate the impact of higher loan impairment charges and prudential provisions following the forbearance expiry. Some banks may continue operating under forbearance with penalties, such as restrictions on dividend payments.
The recent naira devaluation has bolstered foreign-currency liquidity in the banking sector by increasing forex market turnover. Additionally, Nigerian banks hold sufficient liquidity to meet upcoming Eurobond obligations, with USD2.2 billion in maturities or callable bonds due by the end of 2026, eliminating the need for refinancing.
