Non-Performing Loans Rise Above Regulatory Limit as CBN Tightens Banking Rules

Nigeria’s banking sector recorded a noticeable increase in non-performing loans in 2025 following the Central Bank of Nigeria’s decision to end the regulatory forbearance measures introduced during the COVID-19 pandemic.

According to the apex bank’s latest macroeconomic outlook, the industry’s non-performing loans ratio rose to approximately seven percent, exceeding the prudential threshold of five percent set by regulators.

The Central Bank explained that the increase was largely driven by the expiration of temporary relief measures that had allowed banks to restructure loans affected by the pandemic without immediately classifying them as non-performing. With the withdrawal of these concessions, many facilities that had previously been restructured were reclassified as bad loans, pushing the sector’s NPL ratio above regulatory limits.

During the COVID-19 period, financial institutions were permitted to reschedule stressed credit facilities in order to reduce pressure on borrowers and maintain financial system stability. However, in June 2025, the Central Bank issued a directive to banks operating under regulatory forbearance, instructing them to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries and offshore ventures.

Following the full withdrawal of the relief framework, the banking industry has had to recognise impaired assets that were previously shielded by the temporary measures. This development has intensified concerns about asset quality and credit risk management across the sector.

Despite the rise in bad loans, the Central Bank stated that Nigeria’s financial system remained broadly stable throughout 2025. The banking sector maintained strong liquidity and capital buffers, with the average liquidity ratio standing at about 65 percent, significantly above the 30 percent regulatory minimum. The capital adequacy ratio also remained healthy at 11.6 percent, exceeding the minimum requirement of 10 percent.

However, the apex bank cautioned that a sustained increase in non-performing loans could weaken banks’ balance sheets and erode asset quality, potentially posing risks to financial stability. It emphasised the importance of close credit risk monitoring and strict adherence to prudential guidelines to prevent further deterioration.

The Central Bank also called for stronger operational integration of the Global Standing Instruction framework across financial institutions. According to the regulator, improved adoption of the framework would enhance loan recovery efforts, strengthen credit discipline, and reduce future defaults.

Reacting to the exposure of Nigerian banks to forbearance-related loans, Renaissance Capital expressed support for the Central Bank’s policy stance, noting that several major lenders still carry notable levels of restructured facilities on their balance sheets.

Estimates by the firm indicate that Zenith Bank, First Bank, and Access Bank have approximately 23 percent, 14 percent, and four percent of their gross loan portfolios under forbearance, respectively. Fidelity Bank and FCMB were also estimated to have exposure levels of around 10 percent and eight percent.

In contrast, Stanbic IBTC and GTCO were assessed to have no forbearance exposure within their gross loan books, reflecting stronger asset quality positioning among the lenders.

Zenith Bank had earlier disclosed plans to fully write off its forbearance exposures by the end of the second quarter of the previous year, as part of efforts to strengthen its balance sheet and align with post-forbearance regulatory expectations.

The end of regulatory forbearance marks a significant shift in Nigeria’s banking landscape, as lenders adjust to tighter credit conditions, heightened regulatory scrutiny, and increased pressure to maintain strong capital and liquidity positions amid evolving macroeconomic challenges.