Nigerian banks are prone to face decrease profitability, tighter capital buffers, and a possible uptick in non-performing loans (NPLs) because the nation’s central {bank} begins a gradual withdrawal of the regulatory forbearance measures launched on the top of the COVID-19 disaster.
In a round launched on Friday, the Central Bank of Nigeria (CBN) ordered all banks benefiting from forbearance on credit score exposures or breaches of Single Obligor Limits to droop dividend funds, defer government bonuses, and halt new investments in overseas subsidiaries or offshore ventures.
The coverage shift comes at a time when banks are already absorbing important credit score losses linked to Nigeria’s fragile {economic} restoration and overseas alternate instability.
In keeping with Nairametrics’ analysis, ten listed business banks recorded a cumulative N3.77 trillion in mortgage impairment fees between 2023 and Q1 2025.
The determine surged from N1.34 trillion in 2023 to N2.13 trillion in 2024, with an extra N297 billion in provisions recorded within the first quarter of 2025 alone.
Regulatory forbearance was launched in March 2020 as a part of pandemic-era reduction measures that allowed Nigerian banks to restructure loans to struggling sectors akin to oil and gasoline, agriculture, and energy, with out classifying them as impaired.
Estimates by Renaissance Capital present that seven Tier-1 and mid-tier banks Zenith Bank ($910 million), FBN Holdings ($848 million), UBA ($771 million), Access Bank ($535 million), Constancy ($556 million), FCMB ($332 million), and GTCO ($60 million)—carry a mixed $4 billion in restructured or “forborne” loans, primarily concentrated within the oil and gasoline sector.
These loans are largely labeled as Stage 2 underneath IFRS 9, denoting a big enhance in credit score danger however not but non-performing.
The phased withdrawal of forbearance is anticipated to exert strain on banks’ capital positions.
Beneath a base case state of affairs the place banks are required to take a ten% provision in opposition to forbearance loans by means of fairness, capital adequacy ratios (CAR) may decline considerably.
In a worst-case state of affairs, the place the loans are reclassified as NPLs and banks are compelled to provision by means of their revenue and loss accounts, NPL ratios may breach the CBN’s benchmark.
Renaissance Capital initiatives NPL ratios may rise to 7.2% for FCMB, 7.1% for UBA, 6.7% for Zenith, and 6.2% for FBNH, properly above present ranges.
Estimated declines in capital adequacy ratios (CAR)
GTCO and Zenith have already began provisioning proactively, with GTCO provisioning 80% of its forbearance mortgage e-book.
Spike in NPL Ratios
Within the worst-case state of affairs—if banks are compelled to reclassify forbearance loans as non-performing—the NPL ratios may rise considerably:
Solely Entry and GTCO would stay under the regulatory 5% NPL ceiling.
Regardless of the opportunity of decrease earnings, banks’ NPL Protection ratio means that they’ll soak up a possible wave of dangerous loans.
The NPL protection ratio is a measure of how a lot mortgage loss provision a {bank} holds relative to its present inventory of non-performing loans. The upper the ratio, the stronger the buffer in opposition to future credit score losses.
Current information compiled by Nairametrics present that the majority banks are higher positioned to cowl dangerous loans resulting from their excessive NPL protection ratios.
Whereas the withdrawal of forbearance introduces capital and liquidity pressures, the info recommend that the majority of Nigeria’s systemically essential banks are adequately cushioned, at the least when it comes to mortgage loss provisioning.
Nevertheless, the chance stays inconsistently distributed, and banks with weaker NPL protection, excessive sectoral focus, or under-provisioned mortgage books should still face earnings strain or potential capital erosion.
