Nigerian banks are likely to face lower profitability, tighter capital buffers, and a potential uptick in non-performing loans (NPLs) as the country’s central bank begins a gradual withdrawal of the regulatory forbearance measures introduced at the height of the COVID-19 crisis.
In a circular released on Friday, the Central Bank of Nigeria (CBN) ordered all banks benefiting from forbearance on credit exposures or breaches of Single Obligor Limits to suspend dividend payments, defer executive bonuses, and halt new investments in foreign subsidiaries or offshore ventures.
The policy shift comes at a time when banks are already absorbing significant credit losses linked to Nigeria’s fragile economic recovery and foreign exchange instability.
According to Naijaonpoint’ research, ten listed commercial banks recorded a cumulative N3.77 trillion in loan impairment charges between 2023 and Q1 2025.
The figure surged from N1.34 trillion in 2023 to N2.13 trillion in 2024, with an additional N297 billion in provisions recorded in the first quarter of 2025 alone.
Regulatory forbearance was introduced in March 2020 as part of pandemic-era relief measures that allowed Nigerian banks to restructure loans to struggling sectors such as oil and gas, agriculture, and power, without classifying them as impaired.
Estimates by Renaissance Capital show that seven Tier-1 and mid-tier banks Zenith Bank ($910 million), FBN Holdings ($848 million), UBA ($771 million), Access Bank ($535 million), Fidelity ($556 million), FCMB ($332 million), and GTCO ($60 million)—carry a combined $4 billion in restructured or “forborne” loans, primarily concentrated in the oil and gas sector.
These loans are largely classified as Stage 2 under IFRS 9, denoting a significant increase in credit risk but not yet non-performing.
The phased withdrawal of forbearance is expected to exert pressure on banks’ capital positions.
Under a base case scenario where banks are required to take a 10% provision against forbearance loans through equity, capital adequacy ratios (CAR) could decline significantly.
In a worst-case scenario, where the loans are reclassified as NPLs and banks are forced to provision through their profit and loss accounts, NPL ratios could breach the CBN’s benchmark.
Renaissance Capital projects NPL ratios could rise to 7.2% for FCMB, 7.1% for UBA, 6.7% for Zenith, and 6.2% for FBNH, well above current levels.
Estimated declines in capital adequacy ratios (CAR)
GTCO and Zenith have already started provisioning proactively, with GTCO provisioning 80% of its forbearance loan book.
Spike in NPL Ratios
In the worst-case scenario—if banks are forced to reclassify forbearance loans as non-performing—the NPL ratios could rise significantly:
In the worst-case scenario—if banks are forced to reclassify forbearance loans as non-performing—the NPL ratios could rise significantly:
Only Access and GTCO would remain below the regulatory 5% NPL ceiling.
Despite the possibility of lower profits, banks’ NPL Coverage ratio suggests that they can absorb a potential wave of bad loans.
The NPL coverage ratio is a measure of how much loan loss provision a bank holds relative to its current stock of non-performing loans. The higher the ratio, the stronger the buffer against future credit losses.
Recent data compiled by Naijaonpoint show that most banks are better positioned to cover bad loans due to their high NPL coverage ratios.
While the withdrawal of forbearance introduces capital and liquidity pressures, the data suggest that most of Nigeria’s systemically important banks are adequately cushioned, at least in terms of loan loss provisioning.
However, the risk remains unevenly distributed, and banks with weaker NPL coverage, high sectoral concentration, or under-provisioned loan books may still face earnings pressure or potential capital erosion.