Nigerian banks are likely to face lower profitability, tighter capital buffers, and a potential uptick in non-performing loans (NPLs) as the country’s central bank begins a gradual withdrawal of the regulatory forbearance measures introduced at the height of the COVID-19 crisis.
In a circular released on Friday, the Central Bank of Nigeria (CBN) ordered all banks benefiting from forbearance on credit exposures or breaches of Single Obligor Limits to suspend dividend payments, defer executive bonuses, and halt new investments in foreign subsidiaries or offshore ventures.
The policy shift comes at a time when banks are already absorbing significant credit losses linked to Nigeria’s fragile economic recovery and foreign exchange instability.
According to Nairametrics’ research, ten listed commercial banks recorded a cumulative N3.77 trillion in loan impairment charges between 2023 and Q1 2025.
The figure surged from N1.34 trillion in 2023 to N2.13 trillion in 2024, with an additional N297 billion in provisions recorded in the first quarter of 2025 alone.
Banks are already in a positive position
Meanwhile, reports from some banks indicate that they have cleared or are near to clearing their forbearance positions suggesting this circular may have been targeted at banks that have not.
For example, sources within GTCO inform Nairametrics that they cleared their regulatory forbearance as of December 2024. The bank’s GMD/CEO also stated this in the bank’s earnings call back in April.
Another source in Zenith informed Nairametrics that the balance of their forbearance will be cleared by June 2025.
What RENCAP report is saying
Regulatory forbearance was introduced in March 2020 as part of pandemic-era relief measures that allowed Nigerian banks to restructure loans to struggling sectors such as oil and gas, agriculture, and power, without classifying them as impaired.
- According to data compiled by Renaissance Capital, and seen by Nairametrics, the CBN’s forbearance policy kept the sector-wide NPL ratio at a modest 4.3%, below the 5% regulatory threshold, despite severe macroeconomic dislocations.
- Estimates by Renaissance Capital show that seven Tier-1 and mid-tier banks Zenith Bank ($910 million), FBN Holdings ($848 million), UBA ($771 million), Access Bank ($535 million), Fidelity ($556 million), FCMB ($332 million), and GTCO ($60 million)—carry a combined $4 billion in restructured or “forborne” loans, primarily concentrated in the oil and gas sector.
- These loans are largely classified as Stage 2 under IFRS 9, denoting a significant increase in credit risk but not yet non-performing.
- The Rencap report was published in December based on estimates from the bank’s 2024 half-year results.
- Nairametrics understands Rencap will be updating the report soon.
- But with the worst of the pandemic now behind and Nigeria’s foreign exchange and monetary environment shifting, the central bank is keen to unwind what it sees as prolonged and distortionary relief.
Capital at risk
The phased withdrawal of forbearance is expected to exert pressure on banks’ capital positions.
According to the report, under a base case scenario where banks are required to take a 10% provision against forbearance loans through equity, capital adequacy ratios (CAR) could decline significantly.
- Zenith Bank’s CAR would fall by an estimated 128 basis points; FBNH, by 149bps; and Fidelity, by as much as 394bps.
- While GTCO has already provisioned roughly 80% of its forbearance book and Zenith Bank 20%, others appear less prepared.
- FBN Holdings’ largest exposure—oil group Aiteo—has reportedly resumed interest payments, suggesting an improvement in cash flow, but uncertainty remains over the repayment of principal.
- In a worst-case scenario, where loans are reclassified as NPLs and banks are required to provision through their profit and loss accounts, NPL ratios could exceed the CBN’s benchmark.
- Renaissance Capital projects NPL ratios could rise to 7.2% for FCMB, 7.1% for UBA, 6.7% for Zenith, and 6.2% for FBNH, well above current levels.
Estimated declines in capital adequacy ratios (CAR)
- Fidelity Bank: down 394 basis points
- FCMB: down 198bps
- FBNH: down 149bps
- Zenith Bank: down 128bps
Spike in NPL Ratios
In the worst-case scenario—if banks are forced to reclassify forbearance loans as non-performing—the NPL ratios could rise significantly:
- FCMB: from 5.4% to 7.2%
- UBA: from 6.4% to 7.1%
- Zenith: from 4.6% to 6.7%
- FBNH: from 4.8% to 6.2%
Only Access and GTCO would remain below the regulatory 5% NPL ceiling based on the report published last December.
Banks positioned to absorb losses
Despite the possibility of lower profits, banks’ NPL Coverage ratio suggests that they can absorb a potential wave of bad loans.
The NPL coverage ratio is a measure of how much loan loss provision a bank holds relative to its current stock of non-performing loans. The higher the ratio, the stronger the buffer against future credit losses.
Recent data compiled by Nairametrics show that most banks are better positioned to cover bad loans due to their high NPL coverage ratios.
- Zenith Bank, for instance, leads with an NPL coverage ratio of 223.0%, indicating it has nearly three times more in provisions than reported bad loans.
- GTCO and Fidelity Bank also show solid cushions at 138.7% and 138.4%, respectively. Stanbic IBTC and Access Bank are moderately covered, with ratios above 110%.
- However, UBA and FirstBank Holdings show weaker provisioning at 80.9% and 52.4%, and may need to improve this buffer to provide assurance that they can absorb shocks if macroeconomic conditions worsen further.
While the withdrawal of forbearance introduces capital and liquidity pressures, the data suggest that most of Nigeria’s systemically important banks are adequately cushioned, at least in terms of loan loss provisioning.
However, the risk remains unevenly distributed, and banks with weaker NPL coverage, high sectoral concentration, or under-provisioned loan books may still face earnings pressure or potential capital erosion.
Note: This article has been updated to clarify that the Renaissance Capital report was originally published in December 2024. We also included new information on the latest forbearance loan balances from some banks.
The Reporter could help Users of this report by further researching the usefulness of levies being paid by the Banks to AMCON.