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By Chinwendu Obienyi
After nearly five years of extraordinary regulatory accommodation, Nigeria’s banking industry in 2026 must now confront a reality it had carefully deferred, which is the true quality of its loan books.
With the Central Bank of Nigeria (CBN) formally withdrawing its COVID-era forbearance on restructured facilities on June 30, 2025, Daily Sun has learnt that some banks have now recognised long-suppressed impairments tied to foreign-exchange shocks, subsidy removal, and structurally weak sectors.
This is coming after the apex bank in its macroeconomic outlook report, revealed that the sector recorded a rise in bad loans after the end of the forbearance period directive.
The report showed that the banking industry’s Non Performing Loans (NPLs) ratio, which has been projected to increase modestly between 5.0 per cent and 5.5 per cent in FY 2025, above regulatory threshold, climbed to an estimated 7 per cent.
According to the CBN, the figure reflects the impact of ending the temporary reliefs granted to banks to cushion the effect of the pandemic on borrowers.
While this has raised eyebrows in some quarters, the CBN as well as some stakeholders in the banking sector insist this is not a crisis but rather marks the painful but necessary end of what many describe as Nigeria’s “financial repression era”, where regulatory flexibility, capped yields and moral suasion kept the system stable but opaque.
A Chief Risk Officer at a Tier-1 bank, who preferred anonymity said, “This is the moment of truth for Nigerian banks. For years we carried restructured exposures under regulatory grace. Now we must price reality.”
Forbearance was firstly introduced in 2020 as the economy reeled from the combined shock of COVID-19, oil price collapse and FX shortages. Banks were allowed to restructure troubled loans without immediately classifying them as impaired, especially in aviation, hospitality, manufacturing and oil services sectors.
However, what was initially a temporary relief tool, slowly evolved into a structural cushion. By 2023, a significant portion of large-ticket loans in power, downstream oil, telecom infrastructure and real estate had been rolled over multiple times under regulatory indulgence.
Then came the policy resets of 2023–2024 which involved fuel subsidy removal, naira floatation, FX backlog clearance and aggressive monetary tightening.
Owing to this, corporate balance sheets buckled, energy-intensive firms saw operating costs triple whilst import-dependent manufacturers battled FX scarcity and pricing volatility.
The Chief Executive Officer, Financial Derivatives Company (FDC) Ltd, Bismarck Rewane, during a panel session held last year, said, the shocks did not end with COVID-19 but that the post subsidy economy created new stress layers that were simply hidden under “regulatory carpets”.
Although the figure bypassed the 5.5 per cent, analysts at Coronation Research, stressed that the projected NPL rise reflects accounting normalisation rather than systemic deterioration.
In essence, problem loans already existed, as it was not about new delinquencies sweeping across the industry but rather the delayed recognition of legacy exposures, particularly in FX-sensitive sectors.
Sectors most exposed include; power and gas infrastructure, manufacturing and FMCG, aviation and downstream oil marketing sector.
The withdrawal of forbearance coincided with the CBN’s aggressive recapitalisation programme, which required commercial banks to raise new equity over the next few months.
Currently about 16 banks out of 27, have already met or exceeded the new requirements. According to the Chief Executive Officer, Cowry Asset Management Ltd, Johnson Chukwu, the CBN was deliberately compressing the timeline which was warranted. Chukwu said, “They want banks to clean up their books before going to the market as investors deserve transparency.”
Most tier-1 banks entered 2025 with capital adequacy ratios above 15 per cent, but impairment charges are now eating into buffers. While no immediate solvency risks are visible, tier-2 and smaller banks with sectoral concentration risks could feel disproportionate pressure.
A senior executive at a mid-tier lender who asked not to be named, said, “the bank was not worried about survival, but its ROE will take a hit. According to him “Some exposures simply cannot be defended anymore.”
Beyond loan quality, the broader financial repression era is ending. For years, banks enjoyed a captive market for government securities with negative real yields, while depositors suffered quietly.
Now, treasury bills yield above 20 per cent, policy rates at 26.25 per cent, and tighter liquidity conditions have changed the game.
Former finance minister, Kemi Adeosun, said, “I think that we are back to real price discovery in money markets. This is expected to hurt in the short term, but it restores discipline.”
Banks that previously relied on risk-free arbitrage are being forced to re-focus on core intermediation, lending profitably while managing credit risk in a volatile macro environment.
For corporate borrowers, the post-forbearance world is unforgiving. Interest rates on naira facilities now average 28–32 per cent, with FX loans priced well above SOFR plus country risk premiums.
There are reports that manufacturers are now re-negotiating as banks are now impatient and feel the hammer could come on them.
