The Central Bank of Nigeria (CBN) has initiated a gradual rollback of forbearance measures introduced during the COVID-19 pandemic, signaling tougher times ahead for Nigerian banks. This policy shift is expected to pressure profitability, strain capital reserves, and potentially increase non-performing loans (NPLs) across the sector.
In a directive issued last Friday, the CBN instructed banks benefiting from forbearance—temporary relief on loan classifications and credit exposures—to halt dividend payouts, pause executive bonuses, and refrain from new investments in foreign subsidiaries. The move comes as Nigeria navigates a fragile economic recovery, compounded by foreign exchange volatility and rising credit losses.
Rising Loan Impairments
Data from financial analysts indicates that ten major Nigerian banks collectively reported N3.77 trillion in loan impairment charges from 2023 to Q1 2025. This figure climbed from N1.34 trillion in 2023 to N2.13 trillion in 2024, with an additional N297 billion recorded in the first quarter of 2025. The surge reflects the economic challenges facing key sectors like oil and gas, agriculture, and power, which benefited from loan restructuring during the pandemic.
Forbearance and Its Impact
Introduced in March 2020, forbearance allowed banks to restructure loans without classifying them as impaired, helping maintain a sector-wide NPL ratio of 4.3%, below the CBN’s 5% threshold. However, with the pandemic’s peak behind and macroeconomic conditions shifting, the CBN aims to phase out these measures to address prolonged distortions in the banking sector.
According to industry estimates, seven major banks—Zenith Bank, FBN Holdings, UBA, Access Bank, Fidelity Bank, FCMB, and GTCO—hold approximately $4 billion in restructured loans, primarily in the oil and gas sector. These loans, classified as Stage 2 under IFRS 9, indicate elevated credit risk but are not yet non-performing.
Capital and NPL Risks
The withdrawal of forbearance is likely to strain banks’ capital adequacy ratios (CAR). Under a scenario requiring a 10% provision against forbearance loans, Fidelity Bank could see its CAR drop by 394 basis points, FCMB by 198, FBN Holdings by 149, and Zenith Bank by 128. GTCO and Zenith have proactively provisioned 80% and 20% of their forbearance portfolios, respectively, while others remain less prepared.
In a worst-case scenario, reclassifying these loans as NPLs could push ratios above the CBN’s 5% limit, with FCMB potentially reaching 7.2%, UBA 7.1%, Zenith 6.7%, and FBN Holdings 6.2%. Only Access Bank and GTCO are projected to stay below the regulatory ceiling.
Banks’ Resilience
Despite these challenges, many banks are well-positioned to absorb losses due to robust NPL coverage ratios. Zenith Bank leads with a 298.4% coverage ratio, followed by GTCO (138.7%) and Fidelity Bank (138.4%). Stanbic IBTC and Access Bank also maintain ratios above 110%. However, UBA (80.9%) and FBN Holdings (52.4%) may need to bolster provisions to weather potential economic shocks.
Outlook
While the CBN’s policy shift introduces liquidity and capital pressures, Nigeria’s major banks appear resilient, thanks to strong provisioning buffers. Nevertheless, banks with high exposure to vulnerable sectors or lower coverage ratios face heightened risks of profit erosion and capital strain. As the economic landscape evolves, the banking sector must navigate these challenges to maintain stability.
