CBN withdrawal of forbearance pushes banks’ bad loans above limit
Forbearance exit exposes loan quality pressures in Nigeria’s banking system
Nigeria’s banking sector recorded a noticeable rise in bad loans in 2025 following the Central Bank of Nigeria’s withdrawal of regulatory forbearance introduced during the COVID-19 pandemic, highlighting the delayed credit risks that had been temporarily masked by emergency relief measures.
In its latest macroeconomic outlook report, the apex bank disclosed that the industry’s Non-Performing Loans ratio climbed to an estimated seven percent, breaching the prudential threshold of five percent. According to the CBN, the increase was directly linked to the termination of forbearance measures that had allowed lenders to restructure distressed loans without classifying them as non-performing.
“The Non-performing Loans ratio stood at an estimated seven percent relative to the prudential limit of five percent. The level of NPLs reflected the withdrawal of the regulatory forbearance granted to banks during the COVID-19 pandemic,” the report stated.
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During the pandemic period, regulatory forbearance enabled banks to grant payment holidays and restructure facilities affected by economic disruptions without immediate regulatory penalties. With the policy now fully withdrawn, several of those restructured loans have crystallised as bad assets, pushing industry-wide NPL levels above regulatory limits.
The development underscores the extent to which credit risks had been deferred rather than eliminated during the pandemic years. It also reflects the pressure borrowers faced as economic conditions tightened, interest rates rose, and operating costs increased across key sectors of the economy.
Despite the rise in bad loans, the Central Bank maintained that the financial system remained broadly stable throughout 2025. The report showed that banks continued to post strong liquidity and capital positions, with the industry liquidity ratio averaging 65 percent, well above the regulatory minimum of 30 percent. Capital adequacy also remained above benchmark, standing at 11.6 percent compared to the required minimum of 10 percent.
According to the apex bank, these buffers indicate that Nigerian lenders retain sufficient capacity to absorb shocks arising from asset quality deterioration. The CBN attributed the sector’s resilience to improved interest income, expanding digital banking operations, and progress on the ongoing recapitalisation programme.
The recapitalisation policy, which significantly increases minimum capital requirements for banks, is expected to further strengthen balance sheets and enhance the industry’s ability to support the real economy through larger and longer-term lending. As pandemic-era support measures unwind fully, the sector’s performance will increasingly reflect its underlying credit discipline and risk management practices rather than regulatory relief.
