With Nigeria’s banking sector moving out of the COVID-19 pandemic fog era, the Central Bank of Nigeria (CBN) is closing down the forbearance rules that provided brief relaxations to lenders and borrowers.
This will make the environment for Nigeria’s banks colder from now on, with implications for profitability, capital cushions, and shareholders’ returns.
End of Forbearance Era
During the crisis, the CBN permitted banks to restructure loans to distressed sectors — oil & gas, power, and agriculture, without labeling them non-performing. That flexibility cushioned economic dislocation shocks. Today, though, since Nigeria is commencing macroeconomic stabilization, the central bank concluded it was time to reinstate tighter financial discipline.
A new regulation now compels banks still utilizing forbearance or breaching Single Obligor Limits to offshore investment to freeze executive bonuses and pay dividends. The CBN is saying no more hiding behind their theoretical and optimistic assessment of financial strength.
Impairment Charges on the Rise
As the day-to-day guides celebrate, regulatory complacency dries up and credit risk takes center stage. The News Chronicles, among others, depicts how listed banks accumulated ₦3.77 trillion in impairment losses between 2023-Q1 2025, from ₦1.34 trillion in 2023 to ₦2.13 trillion in 2024, and ₦297 billion during the first quarter of 2025 alone.
Analysts place seven top Nigerian banks, including Zenith, FBN Holdings, UBA, Access, Fidelity, FCMB, and GTCO, with as much as some $4 billion exposed in restructured loans, mostly in the high-risk oil & gas sector. Even though most loans are not rated non-performing today, they are at Stage 2 under IFRS 9, indicating high credit risk.
Capital Buffers Might Take a Knock
In addition to credit losses, banks face another risk: loss of capital cushions. Banks’ CARs would drop substantially if they had to provide for just 10% of restructured loans through equity:
- Zenith Bank: -128bps
- FBN Holdings: -149bps
- Fidelity Bank: -394bps
GTCO is better positioned, having already provided for 80% of restructured loans. Zenith provided 20%, and the remaining percentage is out there.
Worst case, if restructured loans were to be dealt with as non-performing, sector-level NPL levels would skyrocket:
- FCMB: 5.4% → 7.2%
- UBA: 6.4% → 7.1%
- Zenith: 4.6% → 6.7%
- FBN Holdings: 4.8% → 6.2%
These increases could potentially breach the CBN’s 5% NPL threshold and attract regulatory actions.
Which Banks Are Healthier?
Though all the banks will be affected, some are in better positions than others. NPL coverage ratios, measures of the extent to which banks have provided for sour loans, show a wide gulf:
- Zenith Bank: 298.4%
- GTCO: 138.7%
- Fidelity Bank: 138.4%
The three banks have robust buffers and cushions. UBA (80.9%) has less robust provisions, or is more exposed, and FBN Holdings (52.4%) does as well.
What they imply for investors
Rolling back deregulation softness is most likely a long-term conservative approach, but Nigerian banks are implementing it at the wrong moment. They are already facing difficulties in the areas of inflation, currency exposure, and sluggish economic growth.
Investors can expect reduced profitability, reduced dividends, and a conservative shift in banking policy. Executive bonuses and growth plans take second priority to preserving capital and regulatory compliance.
But worse news is on the horizon. The healthier half of the business is better capitalized and has converted with digital innovation and risk management. These are the ingredients that can underpin a long-term recovery and more market resilience.
A New Hierarchy is Emerging
While banks get accustomed to living in a forbearance-free world, risk discipline and financial health differentials will be cut. Well-capitalized institutions, like institutions provisioning hard and with essential diversification of income streams, will be fine, but the others will be squeezed into restructurings, consolidations, or re-strategizations.
This is the new Nigeria, where the banking sector is waiting for a redeployment on which vigor, and not regulatory forbearance, determines who leads and who lags.
