Bad Loans Rise As CBN Ends Bank Forbearance

Non-performing loans in Nigeria’s banking sector escalated to 8.03 per cent in January 2026, marking seven months since the Central Bank of Nigeria terminated the regulatory forbearance granted to commercial banks regarding specific credit exposures and single obligor limit breaches. The data, published in the January 2026 Economic Report of the CBN, revealed that the non-performing loans ratio of the industry surged by 0.52 percentage point from the 7.51 per cent recorded in December 2025. The current figure sits above the five per cent prudential ceiling of the apex bank, pointing to a progressive deterioration in asset quality across the financial sector despite assurances from the apex bank that the industry remains robust. The CBN stated, “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.”

This development followed a directive issued by the CBN in June 2025, which ordered banks still enjoying regulatory forbearance on credit exposures or single obligor limit waivers to stop paying dividends, defer bonuses to directors and senior management executives, and suspend new investments in offshore ventures or foreign subsidiaries. The regulatory body noted that the measure was meant to boost capital buffers, enhance balance sheet resilience, and compel the impacted institutions to retain earnings as they phase out temporary regulatory cushions. In a distinct transitional policy, the central bank also moved to end all COVID-19 related regulatory forbearance and single obligor limit waivers by June 30, 2025, mandating banks to realign the affected credit facilities with the standard existing prudential rules.

Regulatory forbearance previously permitted financial institutions to restructure credits affected by the pandemic without classifying them immediately as bad debts. Following the removal of this cushion, several previously restructured facilities have materialized as non-performing loans, dragging the industry-wide ratio above the regulatory limit. The recent data implies that the regulatory cleanup is beginning to expose weak credits that were previously hidden under regulatory cushions. With these facilities reclassified, commercial banks are forced to recognize greater credit vulnerabilities on their financial records, dragging the bad loan ratio further up. In its macro-economic outlook analysis, the central bank cautioned that a “significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” emphasizing the necessity of keeping credit risk in check and maintaining absolute prudential compliance.

To minimize financial threats, the apex bank suggested deepening the operational integration of the Global Standing Instruction framework across all financial institutions to enhance loan recovery efficiency and credit discipline. Earlier, in February 2025, the regulator ordered bank directors carrying non-performing insider-related loans to resign immediately. Insider credits represent loans extended by a financial institution to its own employees, directors, executives, major block shareholders, or related associates. According to the apex bank, this enforcement was intended to tighten corporate governance and scale up risk management across the banking industry. Financial institutions were instructed to recover the outstanding debts by enforcing collateral options and seizing the equity portions of the defaulting board members. The directive read, “Directors with non-performing insider-related facilities are required to step down immediately from the board, while the bank should commence immediate remediation of the loans through the recovery of the collateral, including the shareholdings of the affected directors,”

More recently, the CBN ordered banks to withhold specific banking services and fresh credit facilities from large-scale borrowers holding bad loans, as part of its ongoing strategies to instill credit discipline in the financial system. This instruction was contained in a circular dated March 12, 2026, which was signed by the Director of Banking Supervision, Dr. Muhammad Abdullahi. Under the new guidelines, debtors whose loans have been tagged as non-performing and logged in the Credit Risk Management System or any private licensed credit bureau are automatically barred from obtaining new loans from banks. The apex bank stressed that the protocol was formulated to mitigate risks from major debtors whose defaults could disrupt the stability of the entire financial infrastructure.

The apex bank noted, “Effective immediately, all financial institutions shall: Restrict further credit access: Any large-ticket obligor with a non-performing facility recorded in the CRMS and/or any licensed private credit bureau shall not be granted additional credit facilities. “For the purpose of this restriction, credit facilities include loans and other forms of direct credit. In addition, such obligors shall not be granted banking facilities or contingent liabilities such as bankers’ confirmations, letters of credit, performance bonds, or advance payment guarantees,” The central bank clarified that the operational curbs apply to individuals or corporate organizations classified as large-ticket obligors under deposit money bank prudential guidelines, describing them as entities whose collective exposure across banks outpaces the Single Obligor Limit or whose liabilities significantly threaten a bank's capital adequacy ratio. The regulator also instructed financial institutions to demand extra realisable collateral from the impacted debtors to back up existing loan exposures, relying on logs in the Credit Risk Management System and private credit bureaus.

Despite the rising bad loans, the apex bank asserted that the broader banking infrastructure remains resilient. The report indicated that the liquidity ratio of the industry rose to 63.38 per cent in January from the 57.22 per cent recorded in December, remaining significantly above the 30 per cent prudential baseline. Conversely, the capital adequacy ratio dropped to 12.05 per cent from the 12.35 per cent recorded in December, though it managed to stay above the ten per cent regulatory benchmark. The CBN stated, “The Nigerian banking industry remained resilient, with most financial soundness indicators staying within prudential regulatory thresholds, affirming financial stability and institutional soundness.” The parameters present a mixed reality for the sector, where liquidity remains solid and capital positions stay above the minimum limit, but the escalation of bad debts points to intense pressures from legacy facilities, high interest rates, currency devaluation, and stricter asset categorization.

The declining asset quality in the financial sector triggered concern among members of the CBN Monetary Policy Committee during its February 2026 session, with policymakers warning that growing bad loans could endanger financial system stability despite broader macroeconomic growth. The Deputy Governor for Economic Policy at the CBN, Dr. Muhammad Abdullahi, stated that rising non-performing loans have turned into a major threat to the financial system, with the potential to disrupt monetary policy transmission if left unmitigated. Abdullahi noted, “Additionally, rising NPLs could pose financial stability risks, and the broader macroeconomy needs to rebalance growth and stability objectives,” The deputy governor observed that this issue was occurring alongside structural excess liquidity in the banking arena, warning that both parameters could dilute the efficacy of monetary policy tools and impede the smooth flow of credit to the productive segments of the economy. Sharing a similar point of view, an MPC member and corporate governance specialist, Aku Odinkemelu, noted that the upward trajectory of bad debts requires stricter regulatory oversight. Odinkemelu stated, “The increase in Non-Performing Loans within the banking system… underscores the need for heightened supervisory vigilance to safeguard asset quality and ensure effective credit transmission,” This highlights that while the sector remains stable, the regulator is shifting focus toward loan quality as operators comply with tougher guidelines following the end of forbearance.