NIGERIA’s banking sector has seen a fresh buildup of bad loans following the withdrawal of COVID-era regulatory forbearance, with non-performing loans (NPLs) rising to an estimated 7 percent, which is above the prudential ceiling of 5 percent, according to the Central Bank of Nigeria (CBN).

The disclosure was contained in the CBN’s 2026 Macroeconomic Outlook for Nigeria, released on Tuesday, which noted that the uptick in NPLs reflected the impact of tighter post-forbearance conditions as banks fully adjusted to standard prudential rules.

The apex bank warned that the deteriorating asset quality posed a direct risk to bank profitability, credit creation and overall financial stability. A worsening NPL profile, it said, could erode balance sheets, weaken banks’ risk-bearing capacity and, in extreme circumstances, trigger systemic stress across the financial system. While stronger capital and liquidity buffers provide some protection, the CBN cautioned that these remained vulnerable to shocks.

It noted that higher credit losses or renewed foreign-exchange (FX) illiquidity could eat into capital buffers, push banks beyond prudential limits and strain liquidity coverage ratios, thereby ultimately undermining financial intermediation and weakening investor confidence.

The CBN further warned that a sharp, though unlikely, depreciation of the naira could pressure bank balance sheets and liquidity positions, expand monetary aggregates and heighten inflation. It also flagged the risk of concentration in the equities market as recapitalisation drove fresh capital raising from banks, potentially crowding out other issuers and testing investor appetite.

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Cyber-risk is also a key vulnerability, given the high level of interconnections within the financial system. A major cyber incident, the bank warned, could trigger data breaches, compromise sensitive information and erode public trust.

Despite these threats, the CBN maintained that the banking industry remained broadly stable in 2025. The sector’s liquidity ratio stood at 65 percent, well above the 30 percent minimum and the 48.94 percent posted in December 2024. This, according to the apex bank, was an indication of strong capacity to meet obligations. Capital adequacy was also firm at 11.6 percent, ahead of the 10 percent regulatory benchmark, demonstrating resilience against credit and market shocks.

To shore up resilience further and support the transition to a trillion-dollar economy, the CBN said it had increased minimum capital requirements for banks to ensure a stronger shock-absorbing base and deepen public confidence.

Looking ahead to 2026–2027, the CBN said it would prioritise four strategic pillars focused on strengthening price stability, safeguarding the financial system, reinforcing the external sector and sustaining a market-determined exchange rate regime. The bank expects closer coordination with fiscal authorities to reduce speculative pressures on the naira and improve the predictability of policy outcomes.

It also projected improved system-wide surveillance through real-time monitoring of financial soundness indicators across institutions and regions, enabling quicker supervisory action and lowering the risk of distress. Stronger cross-border integration is likewise expected to deepen Nigerian participation in regional markets and diversify corporate funding sources.

The CBN added that enhanced supervision, robust financial infrastructure and sound liquidity management would help maintain stable credit flows to productive sectors, reinforcing confidence in the safety and resilience of Nigeria’s financial system.

Banks exceed regulatory limit

At least 11 commercial banks exceeded the 5 percent regulatory limit for non-performing loans (NPL) in April 2025, due to an industry-wide loan reclassification during an annual risk assessment, said a member of CBN’s Monetary Policy Committee (MPC), Mr Mustapha Akinwunmi.

“The Non-Performing Loans (NPL) ratio rose to 5.62 percent in April 2025, exceeding the 5 percent prudential threshold, largely due to loan reclassifications following annual risk assessments,” Akinkunmi said in a personal statement released after the 300th MPC meeting in May.

Non-performing loans (NPLs) in seven Nigerian banks sector surpassed N1.57 trillion in 2024. The banks involved were: Access Holdings, GTCO Holdings, UBA, Zenith Bank, Wema Bank, Fidelity Bank, and Stanbic IBTC. The total value of NPLs reported by these banks increased by 30 percent, from N1.21 trillion in 2023.

Economy Post has severally reported banks’ bad loans, including loans lost because banks could not be recovered over a period.