Nigeria’s banking sector recorded a rise in bad loans in 2025 after the Central Bank of Nigeria (CBN) withdrew the regulatory forbearance granted to lenders during the COVID-19 pandemic, according to the apex bank’s latest macroeconomic outlook report.
The report showed that the banking industry’s Non-Performing Loans ratio climbed to an estimated seven per cent, exceeding the prudential benchmark of five per cent. The CBN said the increase reflected the impact of ending the temporary reliefs earlier granted to banks to cushion the effect of the pandemic on borrowers.
“The Non-performing Loans ratio stood at an estimated 7.00 per cent relative to the prudential limit of 5.00 per cent. The level of NPLs reflected the withdrawal of the regulatory forbearance granted to banks during the COVID-19 pandemic,” the report read.
Regulatory forbearance had allowed banks to restructure loans affected by the pandemic without immediately classifying them as non-performing. With the withdrawal of the measure, a number of previously restructured facilities have now crystallised as bad loans, pushing the industry ratio above the regulatory ceiling.
Despite the increase in bad loans, the CBN stressed that the financial system remained broadly stable in 2025, supported by stronger capital buffers and liquidity positions across the banking sector. The industry liquidity ratio averaged 65 per cent, well above the 30 per cent minimum requirement, while the capital adequacy ratio stood at 11.6 per cent, also above the 10 per cent threshold.
According to the bank, these indicators showed that Nigerian lenders retain the capacity to absorb shocks. The apex bank linked the sector’s resilience to strong interest income, ongoing digital transformation, and the ongoing recapitalisation programme.
The recapitalisation policy, which significantly raises minimum capital requirements for Nigerian banks, is expected to strengthen balance sheets and enhance banks’ ability to support the real sector through bigger-ticket lending.
The report added that the banking recapitalisation exercise, together with macro-prudential guidelines and strengthened regulatory oversight, helped to maintain market confidence during the year.
It also noted that the capital market remained bullish, partly reflecting renewed investor interest in the financial sector. However, the surge in NPLs highlights emerging vulnerabilities, particularly as higher interest rates and challenging economic conditions weigh on some borrowers’ repayment capacity.
The bank warned that a “significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” showing the importance of monitoring credit risk and sustaining prudential discipline.
It also recommended deepening “the operational integration of the GSI framework across all financial institutions to enhance loan recovery efficiency and credit discipline.”
The CBN also recommended strengthening credit discipline and reducing non-performing loans by fully integrating the Global Standing Instruction framework to boost loan recovery efficiency.
It added that improved repayment would enhance MSME and retail credit performance, while helping banks lower operational losses and build stronger capital buffers. The document further revealed that monetary conditions remained tight for most of 2025 as the CBN prioritised price and exchange rate stability.
The Monetary Policy Rate, which had been raised aggressively in 2024, was only eased slightly in September 2025 after signs of economic and price stability strengthened.
The CBN also reaffirmed its commitment to maintaining financial stability through strengthened supervision, continued implementation of macro-prudential tools, and deepening of the Global Standing Instruction framework to enforce loan recovery across the financial system.
The PUNCH
