Banks’ non-performing loans rise following CBN’s withdrawal of regulatory forbearance

Nigeria’s banking sector recorded an increase in bad loans in 2025 following the Central Bank of Nigeria’s (CBN) withdrawal of regulatory forbearance measures introduced during the COVID-19 pandemic, according to the apex bank’s latest macroeconomic outlook report.
The report showed that the industry’s non-performing loan (NPL) ratio rose to an estimated seven per cent, exceeding the prudential benchmark of five per cent. The CBN attributed the rise to the expiration of temporary reliefs that had allowed banks to restructure pandemic-affected loans without immediately classifying them as non-performing.
With the withdrawal of these measures, several restructured facilities were reclassified as bad loans, pushing the industry-wide NPL ratio above the regulatory threshold.
Despite the increase, the CBN said the financial system remained broadly stable in 2025, supported by strong capital buffers and ample liquidity across the sector. The average liquidity ratio stood at about 65 per cent, well above the 30 per cent minimum requirement, while the capital adequacy ratio was recorded at 11.6 per cent, exceeding the 10 per cent regulatory threshold.
According to the bank, these indicators demonstrate the capacity of Nigerian lenders to absorb shocks. The CBN linked the sector’s resilience to robust interest income, ongoing digital transformation, and the current recapitalisation programme.
The recapitalisation policy, which significantly raises minimum capital requirements, is expected to strengthen banks’ balance sheets and enhance their ability to finance larger projects in the real economy. The CBN noted that this exercise, alongside macro-prudential guidelines and stronger regulatory oversight, helped sustain market confidence during the year.
The report also highlighted a generally bullish capital market, reflecting renewed investor interest in the financial sector. However, it cautioned that rising NPLs point to emerging vulnerabilities, particularly as higher interest rates and challenging economic conditions affect borrowers’ repayment capacity.
The CBN warned that a sharp rise in non-performing loans could weaken asset quality and pose systemic risks, underscoring the need for close credit risk monitoring and sustained prudential discipline. It recommended deeper integration of the Global Standing Instruction framework across financial institutions to improve loan recovery and strengthen credit discipline.
The bank added that improved repayment performance would support MSME and retail lending, reduce operational losses, and help banks build stronger capital buffers. Monetary conditions remained tight for most of 2025, as the CBN prioritised price and exchange rate stability, with only a slight easing of the Monetary Policy Rate in September after signs of improved macroeconomic stability.
Looking ahead, the CBN said the outlook for the banking sector remains positive but stressed that lenders must strengthen risk management, diversify loan portfolios, and maintain robust capital positions to guard against future shocks. It added that the recapitalisation programme, together with reforms in the foreign exchange market and tax administration, forms part of broader efforts to consolidate macroeconomic stability and boost investor confidence in 2026.
In a June 2025 circular signed by the Director of Banking Supervision, Olubukola Akinwunmi, the CBN directed banks operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries or new offshore ventures. The measure, the bank said, was aimed at strengthening capital buffers and balance sheet resilience during the transition out of forbearance.
The directive remains in place until affected banks fully exit the forbearance regime and their capital adequacy and provisioning levels are independently verified to be compliant with regulatory standards.
An independent financial report supporting the CBN’s action estimated that several banks still have significant forbearance-related exposures in their loan books, while others have already fully provided for or written off such exposures. In absolute terms, these exposures were estimated to run into several hundred million dollars for some lenders.
The report noted that, in some cases, the scale of forbearance exposure could raise concerns around compliance with single obligor limits, reinforcing the importance of the CBN’s cautious supervisory approach.