Nigeria’s banking industry recorded an uptick in bad loans in 2025 following the Central Bank of Nigeria’s decision to withdraw regulatory forbearance introduced during the COVID-19 pandemic, according to the apex bank’s latest macroeconomic outlook report.
The report revealed that the sector’s Non-Performing Loans (NPL) ratio increased to about seven per cent, exceeding the prudential limit of five per cent. The CBN attributed the rise to the expiration of temporary relief measures that had allowed banks to restructure pandemic-affected loans without immediately classifying them as non-performing.
“The Non-Performing Loans ratio stood at an estimated 7.00 per cent, above the prudential threshold of 5.00 per cent, reflecting the withdrawal of regulatory forbearance granted during the COVID-19 period,” the report stated.
With the forbearance lifted, several previously restructured facilities have now been recognised as bad loans, pushing the industry ratio beyond the regulatory ceiling.
Despite this increase, the CBN maintained that the financial system remained broadly stable in 2025, supported by strong capital and liquidity buffers. Industry liquidity averaged 65 per cent, well above the 30 per cent minimum, while the capital adequacy ratio stood at 11.6 per cent, exceeding the 10 per cent benchmark.
The apex bank noted that these indicators show banks are still well positioned to absorb shocks, citing robust interest income, digital transformation efforts, and the ongoing recapitalisation programme as key resilience factors.
The recapitalisation initiative, which raises minimum capital requirements, is expected to strengthen banks’ balance sheets and improve their capacity to fund larger real-sector projects. The CBN added that the exercise, alongside enhanced regulatory oversight and macro-prudential measures, helped sustain market confidence during the year.
While the capital market remained bullish, driven partly by renewed investor interest in financial stocks, the surge in NPLs underscored emerging risks, especially as elevated interest rates and economic pressures strain borrowers’ repayment capacity.
The CBN warned that a sharp rise in bad loans could weaken asset quality and pose systemic risks, stressing the need for close credit-risk monitoring and sustained prudential discipline. It also recommended deeper integration of the Global Standing Instruction (GSI) framework across financial institutions to improve loan recovery and credit discipline.
According to the report, tighter monetary conditions persisted for most of 2025 as the CBN focused on price and exchange-rate stability. The Monetary Policy Rate, which was aggressively raised in 2024, was only marginally reduced in September 2025 after signs of improved economic stability.
Looking ahead, the CBN expressed optimism about the sector’s outlook but urged banks to strengthen risk management, diversify loan portfolios, and maintain solid capital positions to withstand future shocks. It added that recapitalisation, alongside foreign exchange and tax reforms, forms part of broader efforts to reinforce macroeconomic stability and investor confidence in 2026.
In a June 2025 circular signed by the Director of Banking Supervision, Olubukola Akinwunmi, the CBN directed banks benefiting from regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries until their capital and provisioning levels are independently verified as fully compliant.
Meanwhile, Renaissance Capital, which backed the CBN’s approach, estimated significant forbearance exposures across several banks. According to the firm, Zenith Bank, First Bank, and Access Bank have forbearance exposures of 23 per cent, 14 per cent, and four per cent of gross loans, respectively, while Fidelity Bank and FCMB recorded exposures of 10 per cent and eight per cent. Stanbic IBTC and GTCO were estimated to have zero exposure, with GTCO having fully provisioned and written off its affected loans.
Renaissance Capital added that, in absolute terms, forbearance exposures were estimated at $1.6 billion for Zenith Bank, $887 million for FirstHoldCo, $304 million for AccessCorp, $296 million for Fidelity Bank, $282 million for UBA, and $134 million for FCMB Group, noting that some lenders could potentially breach Single Obligor Limits due to these exposures.
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