Nigeria’s banking sector recorded a fresh increase in bad loans in 2025 after the Central Bank of Nigeria (CBN) withdrew regulatory forbearance that had allowed lenders to restructure pandemic-affected facilities without classifying them as non-performing.
According to the CBN’s latest macroeconomic outlook, the industry’s non-performing loans (NPL) ratio rose to an estimated 7 per cent, exceeding the prudential limit of 5 per cent. The apex bank attributed the rise to the crystallisation of loans that were previously restructured under COVID-19 relief measures but could no longer enjoy special regulatory treatment once the forbearance window closed.
“The Non-performing Loans ratio stood at an estimated 7 per cent relative to the prudential limit of 5 per cent,” the report stated, adding that the increase “reflected the withdrawal of the regulatory forbearance granted to banks during the COVID-19 pandemic.”
Despite the uptick in bad loans, the CBN said the financial system remained stable throughout 2025. Industry liquidity averaged 65 per cent, well above the 30 per cent minimum requirement, while the capital adequacy ratio stood at 11.6 per cent, higher than the 10 per cent regulatory threshold. These buffers, the regulator noted, have helped banks absorb shocks and continue normal operations.
The CBN also said ongoing recapitalisation efforts are expected to further strengthen banks’ balance sheets and improve their capacity to support economic growth through increased lending.
However, the regulator warned that the rise in NPLs heightens credit risk, particularly as borrowers grapple with elevated interest rates and broader economic pressures. If left unchecked, high bad-loan levels could weaken profitability, constrain lending, and undermine overall risk resilience.
“Rising NPLs pose a direct threat to banks’ profitability, credit availability, and overall risk-bearing capacity,” the report noted, stressing the need to prevent further deterioration in asset quality and systemic spillovers.
To address the risks, the CBN urged banks to deepen the use of the Global Standing Instruction framework to strengthen loan recovery and repayment discipline, especially in MSME and retail portfolios. Improved recoveries, it said, would help reduce losses and shore up capital buffers.
Monetary conditions remained tight for most of 2025 as the CBN prioritised price and exchange-rate stability. Although the Monetary Policy Rate was eased slightly in September, the bank said safeguarding financial system stability would remain central to policy decisions.
Looking ahead, the CBN described the sector’s outlook as broadly stable but cautioned that banks must continue to strengthen risk management, diversify loan portfolios, and maintain strong capital positions to withstand future shocks. The ongoing recapitalisation drive, alongside FX and tax reforms, is expected to bolster investor confidence into 2026.
The CBN recently directed banks operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries. The temporary measures are aimed at conserving capital and improving balance-sheet resilience.
