NPL ratio hits 7% in 2025, but apex bank insists Nigeria’s financial system remains stable
Nigeria’s banking industry recorded a noticeable increase in bad loans in 2025 following the Central Bank of Nigeria’s (CBN) decision to withdraw regulatory forbearance measures introduced during the COVID-19 pandemic, according to the apex bank’s latest Macroeconomic Outlook Report.
The report revealed that the industry’s Non-Performing Loans (NPL) ratio rose to an estimated 7 per cent, exceeding the CBN’s prudential benchmark of 5 per cent. The increase, the bank explained, was largely due to the expiration of temporary regulatory reliefs that had allowed lenders to restructure pandemic-impacted loans without immediately classifying them as non-performing.
“The Non-Performing Loans ratio stood at an estimated 7.00 per cent relative to the prudential limit of 5.00 per cent,” the report stated, adding that the rise reflected the impact of withdrawing regulatory forbearance granted during the pandemic.
Under the forbearance framework, banks were permitted to restructure distressed facilities while delaying their classification as bad loans. With the policy now fully withdrawn, several of those restructured facilities have crystallised into NPLs, pushing the industry ratio above the regulatory ceiling.
Despite the uptick in bad loans, the CBN maintained that the banking system remained broadly stable throughout 2025. It pointed to strong liquidity and capital buffers as key factors underpinning the sector’s resilience.
Industry liquidity averaged 65 per cent, significantly above the 30 per cent minimum requirement, while the capital adequacy ratio stood at 11.6 per cent, surpassing the 10 per cent regulatory threshold.
According to the apex bank, these indicators demonstrate that Nigerian banks still possess sufficient capacity to absorb shocks. It attributed the sector’s resilience to robust interest income, continued digital transformation, and the ongoing banking recapitalisation programme.
The recapitalisation drive, which substantially raises minimum capital requirements, is expected to strengthen banks’ balance sheets and improve their ability to finance large-scale projects in the real economy.
The report also noted that the recapitalisation exercise, alongside enhanced macro-prudential guidelines and stricter regulatory oversight, helped sustain market confidence during the year. The capital market remained bullish, driven partly by renewed investor interest in banking stocks.
However, the CBN cautioned that the rising level of non-performing loans exposes emerging vulnerabilities, particularly as elevated interest rates and challenging economic conditions strain borrowers’ repayment capacity.
A “significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” the bank warned, stressing the need for close monitoring of credit risk and sustained prudential discipline.
To address this, the CBN recommended deeper operational integration of the Global Standing Instruction (GSI) framework across financial institutions to strengthen loan recovery and improve credit discipline. It noted that better repayment performance would support MSME and retail lending, reduce operational losses, and help banks build stronger capital buffers.
The report further disclosed that monetary conditions remained tight for most of 2025 as the CBN focused on curbing inflation and stabilising the exchange rate. The Monetary Policy Rate, which had been raised aggressively in 2024, was only marginally eased in September 2025 after signs of improved economic and price stability emerged.
In a separate regulatory move, the CBN in June 2025 issued a circular signed by its Director of Banking Supervision, Olubukola Akinwunmi, directing banks benefiting from regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt investments in foreign subsidiaries or offshore ventures.
The apex bank said the directive followed a review of the capital positions and provisioning adequacy of affected lenders, particularly those with significant credit exposures and potential breaches of Single-Obligor Limits.
The suspension, the CBN explained, will remain in place until the banks fully exit regulatory forbearance and their capital and provisioning levels are independently verified to be compliant with prevailing standards.
Supporting the regulator’s stance, Renaissance Capital disclosed that several major banks still carry notable forbearance exposures. Based on its estimates, Zenith Bank, First Bank, and Access Bank have forbearance exposures equivalent to 23 per cent, 14 per cent, and 4 per cent of their respective gross loan books.
Among tier-II lenders, Fidelity Bank and FCMB were estimated to have exposures of 10 per cent and 8 per cent, respectively. In contrast, GTCO and Stanbic IBTC were reported to have zero forbearance exposure, with GTCO having already provisioned for and written off affected loans.
In absolute terms, Renaissance Capital estimated forbearance exposures at $304 million for AccessCorp, $887 million for FirstHoldCo, $134 million for FCMB Group, $296 million for Fidelity Bank, $282 million for UBA, and $1.6 billion for Zenith Bank.
The firm noted that some lenders, including FirstHoldCo, Fidelity Bank, and Zenith Bank, could potentially breach Single-Obligor Limits due to these exposures.
Looking ahead, the CBN said the outlook for Nigeria’s banking sector remains positive, but warned that lenders must continue to strengthen risk management practices, diversify loan portfolios, and maintain solid capital positions to guard against future shocks. The bank added that recapitalisation, foreign exchange reforms, and improvements in tax administration are central to broader efforts to consolidate macroeconomic stability and boost investor confidence in 2026.
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