CBN Forbearance Withdrawal Triggers Rise in Non-Performing Loans

The Nigerian banking sector faced a sharp reality check in 2025 as bad loans surged past regulatory limits following the Central Bank of Nigeria’s (CBN) decision to withdraw COVID-19 pandemic forbearance measures.

According to the CBN’s latest macroeconomic outlook report, the industry’s Non-Performing Loan (NPL) ratio climbed to 7%, officially breaching the apex bank’s 5% prudential benchmark. This spike marks the “crystallization” of debts that lenders had previously restructured under temporary regulatory shields.

During the pandemic, the CBN granted banks “regulatory forbearance,” allowing them to restructure struggling loans without immediately labeling them as “bad.” By removing this safety net, the CBN has forced banks to acknowledge the true health of their balance sheets.

“The level of NPLs reflected the withdrawal of the regulatory forbearance granted to banks during the COVID-19 pandemic,” the report stated.

Financial analysts at Renaissance Capital estimate significant exposure across major players. Their data suggests that Zenith Bank (23%), First Bank (14%), and Fidelity Bank (10%) carry substantial forbearance-related loans, potentially threatening their Single Obligor Limits. Conversely, GTCO and Stanbic IBTC maintained 0% exposure after aggressively provisioning for risks last year.

Despite the rising defaults, the CBN maintains that the financial system remains “broadly stable.” The apex bank points to several “shock absorbers” currently protecting the industry:

• Liquidity Strength: The industry liquidity ratio averaged 65%, more than double the 30% minimum requirement.

• Capital Buffers: The capital adequacy ratio reached 11.6%, staying above the 10% threshold.

• Recapitalization: The ongoing mandate for banks to raise fresh capital is expected to further fortify balance sheets against future shocks.

To manage the transition, Olubukola Akinwunmi, CBN’s Director of Banking Supervision, issued a strict directive to banks still benefiting from credit forbearance. These institutions must now:

1. Suspend dividend payments to shareholders.

2. Defer bonuses for directors and senior management.

3. Halt new investments in foreign or offshore subsidiaries.

These restrictions remain in place until banks prove their capital adequacy and provisioning meet full regulatory standards.

The CBN is now pushing for the full integration of the Global Standing Instruction (GSI) framework. This tool allows lenders to recover debts directly from a defaulter’s accounts in other banks, a move intended to instill “credit discipline” across the private sector.

While the apex bank eased the Monetary Policy Rate slightly in late 2025, it warned that asset quality remains a primary concern. Moving into 2026, the CBN urges lenders to diversify portfolios and sharpen risk management to protect the economy from systemic risks.