Nigeria’s banking sector saw a fresh rise in bad loans in 2025 after the Central Bank of Nigeria (CBN) withdrew the regulatory forbearance that allowed banks to restructure pandemic-hit facilities without classifying them as non-performing.
Data from the CBN’s latest macroeconomic outlook showed that the banking industry’s Non-Performing Loans ratio climbed to an estimated 7%, pushing the sector above the prudential ceiling of 5%.
The regulator explained that the increase followed the crystallisation of previously restructured loans that could no longer qualify for special consideration once the relief window expired.
The report read, “The Non-performing Loans ratio stood at an estimated 7% relative to the prudential limit of 5%. The level of NPLs reflected the withdrawal of the regulatory forbearance granted to banks during the COVID-19 pandemic.”
Despite the spike in bad loans, the apex bank reported that the financial system remained stable in 2025.
Liquidity levels averaged 65%, far above the 30% minimum requirement, while capital adequacy was recorded at 11.6%, still higher than the 10% regulatory threshold. The CBN said these buffers ensured lenders retained the capacity to absorb shocks and continue normal operations without stress.
The bank added that recapitalisation efforts currently underway are expected to strengthen balance sheets further and improve the sector’s ability to support economic growth through increased lending.
The CBN cautioned that the jump in NPLs exposes the sector to rising credit risk, especially as borrowers contend with higher interest rates and economic pressures.
It warned that elevated bad-loan levels could weigh on profitability, lending capacity and overall risk resilience if credit discipline weakens.
The report read, “Rising NPLs pose a direct threat to banks’ profitability, credit availability, and overall risk-bearing capacity. This underscores the need to sustain measures to ensure that, worsening NPLs do not weaken banks’ balance sheets, impair asset quality, and trigger systemic contagion. Although recent gains in capital adequacy and liquidity ratios provide a buffer, these indicators remain susceptible to unforeseen macroeconomic shocks.”
To mitigate the risk, the regulator called for deeper integration of the Global Standing Instruction framework across the industry to strengthen loan recovery and repayment discipline. It noted that stronger recoveries would help banks reduce operational losses and improve capital buffers, particularly in MSME and retail lending.
The report also confirmed that monetary conditions remained tight through most of 2025 as the apex bank prioritised price and exchange-rate stability. While the Monetary Policy Rate was eased slightly in September, the CBN maintained that financial system stability would remain a key policy focus.
Looking ahead, the bank said the outlook for the sector remains broadly stable but noted that lenders must continue strengthening risk-management practices, diversify loan portfolios and maintain strong capital positions to guard against future shocks. The ongoing recapitalisation drive, alongside reforms in the FX and tax systems, is expected to support investor confidence into 2026.
Naijaonpoint earlier reported that the CBN issued a fresh directive instructing banks operating under regulatory forbearance to suspend dividend payments, defer bonuses for executives, and halt investments in foreign subsidiaries or offshore ventures.
This temporary suspension, according to the CBN, is part of a broader strategy to reinforce capital buffers, improve balance sheet resilience, and ensure prudent capital retention within the banking sector.
The directive applies specifically to banks currently benefitting from forbearance in relation to credit exposures and Single Obligor Limit (SOL) breaches conditions that suggest potential stress in the affected institutions.
The directive applies specifically to banks currently benefitting from forbearance in relation to credit exposures and Single Obligor Limit (SOL) breaches conditions that suggest potential stress in the affected institutions.
A research note by Renaissance Capital has revealed that several of Nigeria’s most prominent banks are facing significant exposure to regulatory forbearance loans.
According to Renaissance Capital’s estimates, Zenith Bank, FirstBank, and Access Bank rank highest in terms of forbearance exposure.
The CBN earlier confirmed that banks currently affected by forbearance measures are under close supervision.