Seven months after the Central Bank of Nigeria took action to terminate regulatory forbearance for banks on certain credit exposures and single-obligor limit violations, bad loans in Nigeria's banking sector increased to 8.03% in January 2026.
The industry's non-performing loan ratio increased by 0.52 percentage points from 7.51 percent in December 2025, according to the data from the CBN's January 2026 Economic Report.
Despite the top bank's claim that the banking system remained resilient, asset quality remained above the CBN's prudential threshold of 5%, indicating a significant decline across the sector.
According to the report, "the non-performing loans ratio increased by 0.52 percentage points to 8.03 percent compared with the level in the preceding period and was above the 5.00 percent prudential threshold following the bank's loan reclassification after the withdrawal of forbearance."
The development came after the CBN issued a directive in June 2025 directing banks that were still receiving regulatory forbearance on credit exposures or waivers of the single obligor limit to halt new investments in foreign subsidiaries or offshore ventures, suspend dividend payments, and postpone bonuses to directors and senior management.
The policy, according to the regulator, was intended to improve balance sheet resilience, boost capital buffers, and compel impacted banks to hold onto earnings while leaving temporary regulatory reliefs.
The top bank also moved to end COVID-19-related regulatory forbearance and waivers on single obligor limits with effect from June 30, 2025, as a separate transition step. This would require banks to align impacted credit exposures with current prudential requirements.
Banks were able to restructure pandemic-affected loans without immediately labeling them as non-performing thanks to regulatory forbearance. Previously restructured facilities have now solidified as bad loans as a result of the measure's withdrawal, raising the industry ratio above the regulatory cap.
According to the most recent NPL reading, the cleanup is starting to reveal weaker loans that were previously protected by regulatory reliefs. The industry's bad-loan ratio rose above the legal limit as a result of banks having to record more credit weakness when those loans were reclassified.
A "significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk," the CBN cautioned in its macroeconomic outlook report, highlighting the significance of keeping an eye on credit risk and upholding prudential discipline.
Additionally, it suggested strengthening "the operational integration of the GSI framework across all financial institutions to enhance loan recovery efficiency and credit discipline."
In order to improve loan recovery efficiency, the CBN also suggested completely integrating the Global Standing Instruction framework to reduce non-performing loans and increase credit discipline.
The apex bank has already mandated that bank directors with non-performing insider-related debts resign immediately in February 2025. A bank's loans to its own executives, directors, staff, significant shareholders, or associated parties are referred to as insider loans.
The CBN claims that the ruling intends to enhance risk management and corporate governance in the banking industry. The apex bank directed banks to confiscate the shareholdings of impacted directors and recover debts through collateral enforcement in order to reduce financial risks.
The circular stated that "directors with non-performing insider-related facilities are required to step down immediately from the board, while the bank should begin immediate remediation of the loans through the recovery of the collateral, including the shareholdings of the affected directors."
In an effort to improve credit discipline in the banking industry, the CBN has ordered banks to refuse some banking services and extra credit facilities to big borrowers with non-performing loans.
Dr. Muhammad Abdullahi, Director of Banking Supervision, signed the letter containing the directive on March 12, 2026.
According to the regulation, banks will no longer grant new credit to debtors whose loan facilities have been designated as non-performing and documented in the Credit Risk Management System or any approved private credit agency.
The policy, according to the top bank, was intended to lower the risks associated with big debtors whose defaults could jeopardize the stability of the financial system. With immediate effect, all financial institutions will: Limit access to additional credit: No large-ticket debtor with a non-performing facility listed in the CRMS or any regulated private credit bureau will be allowed to obtain additional credit facilities.
"Loans and other types of direct credit are considered credit facilities for the purposes of this prohibition. Furthermore, banking facilities and contingent liabilities like bankers' confirmations, letters of credit, performance bonds, or advance payment guarantees will not be issued to such obligors, according to the bank.
According to the prudential standards for deposit money institutions, borrowers who are categorized as large-ticket obligors are subject to the limits, the CBN clarified. The regulator claims that these borrowers include people or businesses whose total exposure across banks surpasses the Single Obligor Limit or whose debts have the potential to materially impact a bank's capital adequacy ratio.
In order to sufficiently protect current loan exposures, the bank additionally instructed financial institutions to seek extra realisable collateral from impacted borrowers.
It stated that data recorded in the Credit Risk Management System and reports from authorized private credit bureaus would be used to identify impacted borrowers.
The CBN insisted that the overall stability of the banking sector persisted. According to the report, the industry's liquidity ratio remained considerably above the prudential level of 30%, rising from 57.22% in December to 63.38% in January.
The capital adequacy ratio was 12.05 percent, which was higher than the required 10 percent but lower than 12.35 percent in December. The CBN states that "the Nigerian banking industry remained resilient, with most financial soundness indicators staying within prudential regulatory thresholds, affirming financial stability and institutional soundness."
The numbers paint a conflicting picture of the banking industry. The increase in bad loans indicates pressure from legacy exposures, currency depreciation, high interest rates, and stricter regulatory classification, but liquidity is still solid, and capital levels are still above the minimum benchmark.
Members of the CBN's Monetary Policy Committee expressed concern about the deteriorating asset quality in the banking industry during their meeting in February 2026. Despite more general improvements in macroeconomic conditions, officials warned that an increase in bad loans could jeopardize financial stability.
Dr. Muhammad Abdullahi, the CBN's Deputy Governor for Economic Policy, stated that rising non-performing loans have become a major danger to the financial system and, if uncontrolled, might compromise the efficiency of monetary policy transmission.
"The macroeconomy as a whole needs to rebalance growth and stability objectives, and rising NPLs could pose risks to financial stability," Abdullahi added.
The deputy governor pointed out that the problem was coexisting with the banking system's ongoing excess liquidity, cautioning that both might lessen the effect of monetary policy actions and restrict the effective flow of credit to the economy's productive sectors.
Similar worries were expressed by MPC member and corporate governance specialist Aku Odinkemelu, who stated that more stringent regulatory oversight was necessary due to the rise in problematic loans. Odinkemelu stated, "The rise in non-performing loans in the banking system highlights the need for increased supervisory vigilance to safeguard asset quality and ensure effective credit transmission."
The remarks imply that although the banking industry is still generally strong, authorities are paying more attention to the quality of loan assets as the sector adapts to more stringent prudential regulations after regulatory forbearance was lifted.
