Nigeria’s banking sector recorded a rise in bad loans in 2025 following the withdrawal of regulatory forbearance by the Central Bank of Nigeria (CBN), according to the apex bank’s latest macroeconomic outlook report.
The report showed that the industry’s non-performing loans (NPL) ratio climbed to an estimated seven per cent, exceeding the regulatory benchmark of five per cent. The CBN attributed the increase to the expiration of temporary relief measures introduced during the COVID-19 pandemic to support borrowers and lenders.
Regulatory forbearance had allowed banks to restructure loans affected by the pandemic without classifying them as non-performing. With the withdrawal of the relief, several restructured facilities have now crystallised as bad loans, pushing the NPL ratio above the prudential limit.
Despite the uptick in impaired loans, the CBN said the banking system remained largely stable in 2025, supported by strong capital buffers and ample liquidity. The average liquidity ratio stood at 65 per cent, well above the minimum requirement of 30 per cent, while the capital adequacy ratio reached 11.6 per cent, exceeding the regulatory threshold of 10 per cent.
The apex bank said these indicators demonstrate that banks retain sufficient capacity to absorb shocks, attributing the sector’s resilience to strong interest income, ongoing digital transformation, and the bank recapitalisation programme currently underway.
The recapitalisation initiative, which significantly raises minimum capital requirements, is expected to further strengthen banks’ balance sheets and improve their ability to support the real economy through larger lending capacity.
The report also noted that tighter regulatory oversight and macro-prudential policies helped sustain market confidence, while the capital market remained bullish amid renewed investor interest in financial stocks.
However, the CBN cautioned that a sustained rise in non-performing loans could weaken asset quality and pose systemic risks, especially as higher interest rates and challenging economic conditions strain borrowers’ repayment capacity.
To mitigate credit risk, the apex bank recommended deeper integration of the Global Standing Instruction (GSI) framework across all financial institutions to improve loan recovery and enforce stronger credit discipline. Improved repayments, it said, would enhance MSME and retail credit performance while reducing operational losses.
The report further noted that monetary conditions remained tight for most of 2025, as the CBN prioritised price and exchange rate stability. The Monetary Policy Rate, which was raised aggressively in 2024, was eased slightly in September 2025 following signs of improving economic stability.
Looking ahead, the CBN said the outlook for the banking sector remains positive, but urged lenders to strengthen risk management practices, diversify loan portfolios, and maintain robust capital positions to guard against future shocks.
The apex bank reaffirmed its commitment to financial stability through enhanced supervision, continued use of macro-prudential tools, and full implementation of the GSI framework.
In June 2025, the CBN directed banks operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries or offshore ventures until their capital adequacy and provisioning levels are fully verified.
Market analysts, including Renaissance Capital, have supported the CBN’s move, noting that several major banks still carry significant forbearance exposures. The firm estimates notable exposure levels across some tier-one and tier-two banks, while others have already fully provisioned and exited the forbearance regime.
Overall, the CBN said ongoing reforms, including bank recapitalisation, foreign exchange market adjustments, and tax administration reforms, are expected to strengthen macroeconomic stability and boost investor confidence in 2026.
