Nigerian Banks’ Bad Loans Rise to 7% After CBN Ends COVID-19 Forbearance

 Nigerian Banks’ Bad Loans Rise to 7% After CBN Ends COVID-19 Forbearance

Published: January 

Nigeria’s banking sector recorded a notable increase in non-performing loans (NPLs) in 2025 following the withdrawal of COVID-19 regulatory forbearance by the Central Bank of Nigeria (CBN), according to the apex bank’s latest macroeconomic outlook report.

The report revealed that the industry’s NPL ratio rose to an estimated 7.0 per cent, exceeding the regulatory benchmark of 5.0 per cent, as banks were required to reclassify previously restructured loans.

The CBN explained that the increase was largely expected, stating that the rise in bad loans reflected the normalisation of prudential regulations after pandemic-era relief measures expired.

“The Non-performing Loans ratio stood at an estimated 7.00 per cent relative to the prudential limit of 5.00 per cent. The level of NPLs reflected the withdrawal of the regulatory forbearance granted to banks during the COVID-19 pandemic,” the report said.

Why Bad Loans Increased

Regulatory forbearance was introduced in 2020 to cushion the economic impact of COVID-19. It allowed banks to restructure loans—particularly in oil and gas, power, manufacturing, and agriculture—without classifying them as non-performing.

However, as the CBN began phasing out the policy in mid-2025, loans that had previously been shielded under the relief framework were required to be properly recognised, leading to a rise in reported bad loans across the sector.

In June 2025, the CBN issued a circular directing banks with significant forbearance exposures to take temporary corrective actions, including:

Suspension of dividend payments

Deferral of executive bonuses

Restrictions on investments in foreign subsidiaries and offshore ventures

The measures were aimed at preserving capital and strengthening balance sheets during the transition period.

Banks Most Exposed

According to analysts, the impact of the forbearance withdrawal varies across lenders. Firms such as Zenith Bank, First Bank, and Access Bank were identified as having notable exposure to restructured loans, with estimates placing forbearance-related loans at:

Zenith Bank: 23% of gross loans

First Bank: 14%

Access Bank: 4%

Despite this, the CBN maintained that the banking system remains broadly stable.

Outlook for 2026

The apex bank attributed continued stability to:

The ongoing bank recapitalisation programme, with a compliance deadline of March 31, 2026

Improved capital buffers

Strong liquidity positions across most lenders

The report also urged banks to intensify loan recovery efforts through tools such as the Global Standing Instruction (GSI) framework and strengthen credit risk management to contain future asset quality deterioration.

Overall, the CBN described the rise in NPLs as part of a post-pandemic regulatory reset, stressing that increased transparency and stricter enforcement are necessary for long-term financial system stability.

Disclaimer

This report is based on publicly available information from Punch Newspapers and official data from the Central Bank of Nigeria. It is for informational purposes only and does not constitute financial or investment advice.