NPL ratio climbs above regulatory limit as pandemic-era forbearance expires, but lenders maintain solid capital buffers and continue extending credit to key sectors…..
Nigeria’s banking industry has recorded a sharp rise in non-performing loans (NPLs) after the Central Bank of Nigeria (CBN) discontinued the COVID-19 regulatory forbearance introduced during the pandemic.
According to the CBN’s Economic Report for the first quarter of 2026, the industry’s NPL ratio climbed to 9.94 per cent, exceeding the regulator’s prudential benchmark of 5.0 per cent. The figure also represents a notable increase from 7.51 per cent recorded in the final quarter of 2025.
The apex bank attributed the increase largely to the withdrawal of the pandemic-era relief measures that had allowed banks to restructure or provide temporary concessions on loans affected by the economic impact of COVID-19.
By ending the long-standing forbearance programme, the CBN said it aims to improve transparency in the banking system and ensure financial institutions present a more accurate picture of their loan portfolios. As a result, loans that were previously under regulatory relief are now being recognised based on their actual performance, leading to the higher NPL ratio.
Despite the deterioration in asset quality, the CBN maintained that the banking sector remains resilient, with major financial indicators still above regulatory requirements.
The report showed that the industry’s Liquidity Ratio (LR) rose to 67.32 per cent in the first quarter of 2026 from 57.22 per cent in the preceding quarter, remaining comfortably above the statutory minimum of 30 per cent.
Similarly, the Capital Adequacy Ratio (CAR) improved to 13.19 per cent, up from the previous quarter and higher than the minimum regulatory requirement of 10 per cent. According to the CBN, the stronger capital position enhances banks’ ability to absorb potential losses, while the healthy liquidity level reflects their capacity to meet short-term obligations and continue supporting economic activities through lending.
“The Nigerian banking sector remained resilient and stable, as reflected in the performance of key financial soundness indicators, most of which were within regulatory thresholds,” the report noted.
Lending activity also continued to expand during the period. Credit extended by Other Depository Corporations (ODCs) increased by 5.95 per cent, rising from ₦57.32 trillion in the fourth quarter of 2025 to ₦60.73 trillion in the first quarter of 2026.
A breakdown of sectoral lending showed that the services sector attracted the largest share of total credit at 59.54 per cent, followed by the industrial sector with 34.10 per cent, while agriculture accounted for 6.36 per cent. Consumer lending, however, weakened during the quarter.
The latest figures suggest that although the withdrawal of COVID-19 forbearance has exposed more distressed loans and pushed the NPL ratio well above the CBN’s preferred threshold, Nigerian banks remain adequately capitalised and liquid. The continued growth in credit also indicates that lenders are still financing productive sectors of the economy despite tighter monetary conditions and a more transparent loan classification regime.
