Nigeria’s banking industry recorded an increase in bad loans in 2025 following the Central Bank of Nigeria’s decision to end the regulatory forbearance introduced during the COVID-19 pandemic, according to the apex bank’s latest macroeconomic outlook report.
The report indicated that the sector’s Non-Performing Loans ratio rose to an estimated seven per cent, exceeding the five per cent prudential benchmark. The increase was attributed to the withdrawal of temporary reliefs earlier granted to banks to ease the impact of the pandemic on borrowers.
“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 stated.
Under the forbearance regime, banks were allowed to restructure pandemic-affected loans without classifying them as non-performing. However, with the policy now withdrawn, several restructured facilities have translated into bad loans, pushing the industry ratio above the regulatory threshold.
Despite the rise in non-performing loans, the CBN noted that the financial system remained broadly stable throughout 2025. This stability was supported by stronger capital buffers and solid liquidity levels across the banking sector. The average liquidity ratio stood at 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 benchmark.
The apex bank said these indicators showed that Nigerian banks still possess sufficient capacity to withstand shocks. It linked the sector’s resilience to strong interest income, ongoing digital transformation efforts, and the bank recapitalisation programme.
The recapitalisation initiative, which significantly raises minimum capital requirements for banks, is expected to further strengthen balance sheets and enhance lenders’ ability to support the real economy through larger-scale lending.
According to the report, the recapitalisation exercise, combined with macro-prudential policies and enhanced regulatory oversight, helped sustain market confidence during the year.
It also noted that the capital market remained bullish, driven partly by renewed investor interest in financial stocks. However, the growing level of non-performing loans was highlighted as a potential vulnerability, particularly amid high interest rates and challenging economic conditions affecting borrowers’ repayment capacity.
The CBN warned that a “significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” underscoring the need for strict credit risk monitoring and prudential discipline.
The report recommended deeper operational integration of the Global Standing Instruction framework across financial institutions to improve loan recovery efficiency and strengthen credit discipline.
It added that better repayment performance would improve MSME and retail credit outcomes, reduce operational losses for banks, and help build stronger capital buffers. The report also revealed that monetary conditions remained tight for most of 2025 as the CBN focused on price and exchange rate stability.
The Monetary Policy Rate, which was sharply increased in 2024, was only marginally eased in September 2025 after signs of improved economic and price stability emerged.
Looking ahead, the apex bank maintained that the sector’s outlook remains positive but cautioned banks to strengthen risk management practices, diversify loan portfolios, and maintain robust capital positions to guard against future shocks.
The CBN also reiterated its commitment to financial stability through stronger supervision, continued use of macro-prudential tools, and expanded implementation of the Global Standing Instruction framework to enforce loan recovery.
In June 2025, the CBN directed banks operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries and offshore ventures. The directive, signed by the Director of Banking Supervision, Olubukola Akinwunmi, was aimed at strengthening capital buffers and enhancing balance sheet resilience during the transition period.
The directive stated, “In view of the need to strengthen capital buffers, enhance balance resilience and promote prudent internal capital retention during this transitional period, the CBN hereby directs that all banks currently benefiting from credit or SOL forbearance shall suspend the payment of dividends to shareholders, defer the payment of bonuses to directors and senior management staff, and refrain from making investments in foreign subsidiaries or new offshore ventures.
“This temporary suspension is until such a time as the regulatory forbearance is fully exited and the banks’ capital adequacy and provisioning levels are independently verified to be fully compliant with prevailing standards.”
An investment research firm, which supported the CBN’s move, estimated that several banks still have significant forbearance exposures across their loan books. Some lenders were identified as potentially breaching Single Obligor Limits due to the scale of these exposures.
The report added that while some banks have fully provisioned and written off their forbearance exposures, others may face heightened regulatory pressure as the transition continues.
