A recent Renaissance Capital (Rencap) research note, titled “Nigerian Banks, Cash is King,” has shed light on the significant exposure of several leading Nigerian banks to regulatory forbearance loans, predicting prolonged dividend suspensions for some until 2028. The report follows a Central Bank of Nigeria (CBN) directive issued on June 13, 2025, mandating banks with unresolved forbearance exposures to halt dividend payments, defer executive bonuses, and pause new offshore investments to bolster capital reserves and ensure adequate provisioning for impaired loans.
CBN’s Push for Financial Stability
The CBN’s directive targets banks benefiting from forbearance measures, introduced in March 2020 to allow loan restructuring during the COVID-19 crisis without classifying them as impaired. These measures kept the sector-wide non-performing loan (NPL) ratio at 4.3%, below the 5% regulatory threshold. However, with Nigeria’s economy stabilizing, the CBN is now phasing out these relief measures, requiring banks to fully provision for forbearance loans and comply with stricter prudential standards, including Single Obligor Limits (SOL). The suspensions will remain until banks exit forbearance and their capital adequacy is independently verified.
Banks with High Forbearance Exposure
Rencap’s analysis identifies Zenith Bank, FirstBank, and Access Bank as having the highest forbearance exposures, with Zenith’s loans amounting to 23% of its gross loan book ($1.6 billion), FirstBank at 14% ($887 million), and Access Bank at 4% ($304 million). Tier-II banks, Fidelity Bank and FCMB, report exposures of 10% ($296 million) and 8% ($134 million), respectively. In contrast, GTCO and Stanbic IBTC have zero exposure, having already provisioned and cleared their forbearance loans by December 2024. UBA, with a $282 million exposure, is projected to resume dividends by 2026 due to robust cash profits.
The report notes that forbearance loans are heavily concentrated in the oil and gas sector, particularly in upstream and refinery projects, raising concerns about potential SOL breaches. FirstBank, Fidelity, and Zenith are flagged as at risk of exceeding these limits, which aim to prevent over-concentration of credit risk. FCMB, however, remains compliant, with its largest single exposure at $68.1 million, below its $94 million ceiling.
FCMB’s Response and Progress
FCMB Group Plc issued a statement on June 16, 2025, reassuring investors of its progress in reducing forbearance loans from N538.8 billion in September 2024 to N207.6 billion by May 31, 2025. The bank anticipates a temporary rise in Stage 3 NPLs to 11.5% as it exits forbearance, but expects this to fall below 10% by year-end with loan growth. FCMB also plans to pay dividends from its non-banking subsidiaries, mitigating the impact of the CBN’s restrictions.
Zenith Bank sources indicated plans to clear forbearance loans by December 2025, citing sufficient profits to cover exposures. First HoldCo, FirstBank’s parent, emphasized its strong shareholder support and attractive valuation, highlighting potential benefits from a possible Cash Reserve Ratio (CRR) regime review and sustained income growth.
Dividend Suspensions Until 2028
Rencap projects that Access Bank, FirstBank, and Zenith Bank will suspend dividends from their banking arms until at least 2028, as they work to provision for forbearance and SOL exposures. While dividends from non-banking subsidiaries are possible, these contribute minimally to group earnings, limiting significant payouts. UBA’s outlook is more optimistic, with dividends expected to resume by 2026. GTCO, having proactively provisioned, faces no dividend restrictions.
The report underscores that cash profits, rather than reported earnings, are a more reliable measure of bank performance under Nigeria’s IFRS rules. These rules allow banks to recognize interest income on Stage 2 restructured loans without receiving cash, creating a gap between reported profits and actual liquidity available for dividends or loss absorption.
Broader Implications for the Banking Sector
The CBN’s directive aligns with Nigeria’s ongoing bank recapitalization efforts, with new capital thresholds set to be phased in by 2026. The move reflects a shift from pandemic-era relief to stricter fiscal discipline, addressing risks from foreign exchange volatility, inflation, and exposure to volatile sectors like oil and gas. Analysts view the restrictions as a preemptive measure to prevent systemic vulnerabilities, but they may dampen investor sentiment, particularly among dividend-focused shareholders.
The suspension of offshore investments could also hinder banks’ expansion plans under the African Continental Free Trade Agreement (AfCFTA), as Nigerian banks seek diversified revenue streams. Critics argue that the CBN’s approach, while prudent, may undermine shareholder confidence and Nigeria’s appeal to investors.
Market Reaction and Outlook
On June 16, 2025, the Nigerian Exchange (NGX) All-Share Index fell by 0.13%, driven by sell-offs in banking stocks as investors reacted to the CBN’s forbearance exit. Analysts warn that the dividend suspensions could pressure bank share prices in the short term, but long-term benefits include stronger balance sheets and improved resilience. The CBN’s focus on independent verification of capital adequacy signals a commitment to restoring financial soundness, though banks with high exposures face a challenging road ahead.
As Nigeria’s banking sector navigates this transitional period, the interplay of regulatory tightening, recapitalization, and macroeconomic pressures will shape its trajectory. While GTCO and Stanbic IBTC are well-positioned, banks like Zenith, FirstBank, and Access must accelerate efforts to exit forbearance to restore investor confidence and resume dividends.
