Banks: Bad Loans Rise After CBN Ends Forbearance

Nigeria’s banking sector recorded a significant increase in bad loans in January 2026 following the Central Bank of Nigeria’s decision to end regulatory forbearance granted to banks on certain credit exposures and single obligor limit breaches.

According to the CBN’s January 2026 Economic Report, the industry’s Non-Performing Loan (NPL) ratio rose to 8.03 per cent from 7.51 per cent recorded in December 2025, representing an increase of 0.52 percentage points.

The latest figure remains well above the apex bank’s prudential threshold of five per cent, indicating a deterioration in asset quality across the banking sector despite assurances that the industry remains resilient.

The CBN attributed the increase to the reclassification of loans following the withdrawal of regulatory forbearance.

“Following the bank’s loan reclassification after the withdrawal of forbearance, the non-performing loans ratio rose by 0.52 percentage point to 8.03 per cent compared with the level in the preceding period and was above the 5.00 per cent prudential threshold,” the report stated.

In June 2025, the apex bank directed financial institutions benefiting from regulatory waivers on credit exposures and single obligor limits to suspend dividend payments, defer bonuses for directors and senior management, and halt new investments in foreign subsidiaries and offshore ventures.

The measure was introduced to strengthen capital buffers, improve balance-sheet resilience and encourage affected banks to retain earnings while exiting temporary regulatory reliefs.

The withdrawal of COVID-19-era regulatory forbearance also required banks to classify previously restructured loans in line with existing prudential guidelines. As a result, several facilities that had been protected under temporary relief measures were reclassified as non-performing loans.

The development has exposed weaknesses in loan portfolios that had previously been shielded from stricter classification requirements.

The CBN warned that a sustained increase in bad loans could weaken banks’ balance sheets and pose risks to financial system stability.

To improve credit discipline and loan recovery, the regulator recommended deeper integration of the Global Standing Instruction framework across financial institutions.

Despite the rise in bad loans, the apex bank maintained that the banking industry remains stable. The sector’s liquidity ratio improved to 63.38 per cent in January from 57.22 per cent in December, remaining above the 30 per cent regulatory minimum.

Similarly, the Capital Adequacy Ratio stood at 12.05 per cent, slightly lower than the 12.35 per cent recorded in December but still above the regulatory minimum requirement of 10 per cent.

Members of the Monetary Policy Committee have also expressed concern over the rising NPL ratio, warning that worsening asset quality could threaten financial stability and reduce the effectiveness of monetary policy transmission.

The latest figures highlight growing pressure on banks from legacy credit exposures, high interest rates, exchange rate volatility and tighter regulatory oversight, even as the sector continues to maintain strong liquidity and adequate capital levels.