LAGOS (Jan. 2026) — Nigeria’s banking sector is facing renewed pressure as bad loans surged following the Central Bank of Nigeria’s (CBN) withdrawal of regulatory forbearance measures introduced during the COVID‑19 pandemic.
📉 Rising Non‑Performing Loans
- The industry’s Non‑Performing Loan (NPL) ratio climbed to about 7%, breaching the prudential ceiling of 5%.
- Analysts say the spike reflects the crystallization of previously restructured loans that had been shielded under the forbearance framework.
- Small and medium enterprises (SMEs), which benefited most from loan restructuring, are now struggling to meet repayment obligations.
⚠️ Impact on Banks
- Balance sheet strain: Higher NPLs weaken banks’ capital adequacy and reduce profitability.
- Credit contraction: Lenders are expected to tighten credit conditions, limiting access to financing for businesses.
- Investor sentiment: Breaching prudential limits may dampen confidence in Nigeria’s financial sector.
🔎 Why Forbearance Ended
- The CBN introduced forbearance in 2020, allowing banks to restructure loans without classifying them as non‑performing.
- The policy cushioned borrowers during pandemic shocks but masked the true scale of defaults.
- With economic recovery underway, regulators insisted on returning to stricter prudential standards to safeguard financial stability.
📊 Key Figures
| Indicator | Before Withdrawal | After Withdrawal |
|---|---|---|
| NPL Ratio | ~5% (prudential ceiling) | 7% (breach) |
| Loan Restructuring | Allowed under forbearance | No longer permitted |
| Sector Impact | Stability maintained | Rising defaults, weaker balance sheets |
🚨 Risks Ahead
- SME vulnerability: Smaller businesses remain most exposed to repayment pressures.
- Economic slowdown: Reduced lending could stall Nigeria’s fragile recovery.
- Regulatory balancing act: The CBN must enforce discipline while ensuring credit flows to productive sectors.
✨ Outlook
Financial analysts warn that unless banks strengthen risk management and diversify lending portfolios, the spike in bad loans could persist into 2026. Policymakers face the challenge of balancing prudential regulation with the need to sustain economic growth.
