By Chinwendu Obienyi
As the disruptive tides of the COVID-19 pestilence recede and banks regain their footing, the Central Bank of Nigeria (CBN) has rung the wake-up bell- the era of regulatory forbearance and extended protective measures has come to an end.
It is now time for banks to recalibrate their operations, strengthen balance sheets and embrace more rigorous and disciplined risk management strategies.
By weaning them off oversight suckling and drawing the curtains on regulatory indulgence, experts say that Nigeria is being ushered into a new phase of banking.
Regulatory forbearance is a provisional measure that allows the restructuring of bank assets such as non-performing loans.
It is also a mechanism through which the CBN provides special support to institutions signalling financial stress or failing to meet key prudential standards.
So, what the apex bank is saying in essence is that banks will no longer be cushioned by relaxed oversight measures introduced during times of economic stress like COVID-19, as they are now expected to stand firmly on their feet without leaning on CBN’s forbearance framework.
This empties into setting the stage for a more resilient and transparent financial system as the regulator has rolled out a guideline that could reshape the financial landscape.
The apex bank’s financial forbearance granted in the wake of COVID-19 and its economic aftershocks, allowed for essential loan restructuring, interest rate relief and moratoriums, helping to stabilise a sector heavily impacted by non-performing loans (NPLs).
Notably, industries like oil and gas, agriculture and the power sector benefited from this initiative. These measures provided banks most especially with flexibility to support struggling borrowers and avert a financial crisis.
However, the policy shift, first hinted at in late 2023 and officially implemented in June 2025 by the apex bank signals the return to orthodox supervision and regulatory oversight, just as banks grapple with high inflation, currency volatility, and a fragile recovery in key sectors like oil, manufacturing, and trade.
This would mean that banks across the country would face a more disciplined regime, one that could redefine how they manage risk, restructure loans, and pursue profitability in an increasingly volatile macroeconomic environment.
Key directives from the apex bank reveal that banks still under the forbearance list must pause dividend payments to shareholders, defer executive bonuses and hold off on new investments abroad until they have fully exited forbearance and meet capital adequacy standards which the CBN will verify independently.
Secondly, these new measures will bolster banks’ capital buffers and enhance balance sheet resilience amid ongoing economic challenges like foreign exchange (FX) volatility and inflation. More importantly, the apex bank clarified that these restrictions primarily target a handful of banks still in the transition from pandemic aid and do not reflect the overall strength of the banking sector which remains fundamentally robust.
As expected, the reaction to these directives was panic across the investing community. For example, the domestic bourse felt the heat with its All Share Index (ASI) dropping about 45 basis points while market capitalisation – the value of listed equities, fell by N290.69 billion in two consecutive trading sessions.
Findings by Daily Sun reveal that seven key banks which include; Zenith Bank, Access Holdings, FBN Holdings, United Bank for Africa (UBA), Fidelity Bank, FCMB and Guaranty Trust Holding Company (GTCO) find themselves in the spotlight, collectively holding over $4 billion in forborne loans, primarily within the oil and gas sector.
Similarly, individual exposures range from $60 million for GTCO while Zenith Bank holds a staggering $910 million.
Therefore, what would be the financial pressures for these major banks ahead? How will these banks navigate these pressures amidst the high interest rates, rising inflation and global economic shocks?
NPLs in focus
In response to the economic disruptions triggered by the COVID-19 pandemic and Russia’s invasion of Ukraine, the CBN implemented forbearance measures that allowed banks to restructure loans without classifying them as non-performing, as mentioned earlier.
For nearly four years, these regulatory relaxations cushioned the banking sector. Banks were allowed to defer loan provisioning, delay the recognition of non-performing loans (NPLs), and maintain capital buffers that did not fully reflect underlying risks. It was a necessary short-term remedy but not a sustainable long-term policy.
But in April 2025, the CBN Governor, Olayemi Cardoso confirmed the full reversal of these forbearance policies. “Our objective is to restore market discipline and ensure banks reflect the true state of their loan portfolios,” he said at the recent Monetary Policy Committee (MPC) meeting. “The financial sector must be equipped to navigate risks without extraordinary support.”
The immediate fallout of this policy change is visible in banks’ loan books. According to the CBN’s financial stability report, the average NPL ratio stood at 4.5 per cent at the end of 2024, down from 6.3 per cent in 2021. But analysts believe these numbers were partially obscured by forbearance accounting.
Speaking during the 4th edition of the newly launched; Tier-1 Banks: Getting Bigger, Braver and Dominant – The Class of 2025” by financial intelligence platform, Proshare in Lagos recently, a former director at the Central Bank of Nigeria (CBN), Dr Omolara Akanji, pointed out that digital innovation and complex HoldCo structures have blurred the lines between core banking income and non-core earnings.
Corroborating, a senior banking analyst at Vetiva Capital, Tunji Bello said, “There is a high chance that banks were sitting on legacy bad loans that were simply not classified as such. Now, without the regulatory shield, these loans have to be provisioned properly, which will weigh on earnings.”
Indeed, several Tier-2 banks have already announced higher impairment charges in their Q1 2025 earnings reports. Union Bank and Fidelity Bank, for instance, reported year-on-year increases in provisioning by over 40 per cent. First Bank, which has aggressively expanded into retail lending, is said to be reviewing nearly N120 billion worth of restructured loans under new guidelines.
Capital adequacy under scrutiny
The end of forbearance also exposes potential weaknesses in capital adequacy. Banks that had delayed provisioning must now deduct those amounts from their profit, which affects retained earnings and, by extension, capital ratios.
While Tier-1 banks like Zenith, Access have robust capital buffers—with capital adequacy ratios (CARs) above the regulatory minimum—smaller banks could face pressure. Although, the likes of Zenith Bank, Access Holdings, Fidelity Bank, FCMB have already stated in separate filings with the Nigerian Exchange Limited (NGX) that they would exit the forbearance regime by the end of July, while other smaller banks are already in talks with investors for capital injections, according to sources familiar with ongoing negotiations.
Implications for credit growth and the real economy
With tighter regulations and increased provisioning, banks are likely to become more cautious in lending especially to sectors perceived as high risk, such as SMEs, agriculture, and manufacturing.
The Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf warned that, “Credit will become more expensive and selective. We may see a slowdown in credit growth, especially for long-tenure loans.”
This poses a dilemma for Nigeria’s economy, which needs expanded private-sector credit to drive investment and productivity. Real GDP growth, which reached 3.4 per cent in 2024, is forecast to slow to 2.8 per cent in 2025 partly due to tighter monetary conditions and fiscal uncertainties.
Small businesses that thrived on bank support during the forbearance period now find themselves facing tougher credit terms or cut off entirely.
“We used to roll over facilities every six months,” said Seyi Adebanjo, CEO of a mid-sized logistics company in Lagos. “Now the bank says we need more collateral and a 30 per cent upfront repayment. It is almost impossible.”
Return to fundamentals
For regulators and reform-minded observers, the end of forbearance is a return to sanity, a long-overdue reset that aligns Nigeria’s banking supervision with international standards.
Chief Partner at SPM Professionals, Paul Alaje, explained that the apex bank’s actions mirrors global trend in post-crisis regulatory tightening, which is akin to moves seen in the U.S and Europe. He said, “Nigerian banks are now facing stringent capital requirements such as the 11.25 per cent tier-1 capital compared to Basel III’s 6 per cent. Past CBN interventions included loan restructuring in 2020, interest rate forbearance extensions between 2021- 2022 and preventing FX revaluation gains from being paid as dividends in 2023.
The International Monetary Fund (IMF) encouraged the CBN to unwind forbearance, warning that prolonged relief can create distortionary risks. The CBN Governor, Olayemi Cardoso, has remained firm about ending forbearance by December 2024, allowing for a 6-month grace period despite industry calls for extensions”.
In many ways, the CBN’s move aligns with the broader reform agenda under President Bola Tinubu, who has backed a shift toward market-led economics. Alongside fuel subsidy removal and currency reforms, the return to tight banking supervision completes the triad of tough-love policies aimed at restoring macroeconomic discipline.
Challenges ahead for the CBN and the industry
But even as the regulator reasserts its authority, challenges remain. The CBN must now strengthen its supervisory capacity to ensure compliance. Meanwhile, banks will need to overhaul risk management frameworks, particularly around credit scoring, stress testing, and sectoral exposure.
Chief Business Officer, Optimus by Afrinvest, Dr Ayodeji Ebo, says traditional banks are struggling to keep pace with the fintechs.
Ebo said, “It is easier for an informal trader to get a micro-loan from Moniepoint than from a Tier-1 bank. This is because these fintechs are data-driven, low-cost, and customer-focused. They understand the behavioural side of financial services.”
He also warned that regulation must ensure fintechs and non-bank subsidiaries do not become loopholes for traditional banks to bypass risk-based lending rules. “There needs to be an understanding of how these subsidiaries play by the books so that they are not using those subsidiaries to circumvent regulations. There must be proper firewalls and oversight. If not, we may end up with a shadow banking problem that erodes trust and creates systemic risk”, he said.
Also speaking, Fintech Policy Advisor at Afrinvest, Adebayo Alao, said, “There is a skills gap, especially in digital credit and retail loan management. Banks need to invest in better analytics and customer profiling to mitigate default risks”.
At the same time, the market is watching for potential liquidity squeezes. If too many loans are downgraded or capital buffers eroded, interbank confidence could suffer, leading to reduced liquidity and even credit rationing.
Foreign portfolio investors, however, remain cautious. Uncertainty over the naira’s trajectory, interest rates, and broader fiscal policy could deter major inflows into the financial services sector.
The CBN has signaled it is ready to step in with targeted liquidity support if necessary but insists this would be exceptional, not routine.
This would mean that the next 12 to 18 months will be pivotal as analysts expect the full impact of the forbearance exit to become visible by Q4 2025, when audited results reflect revised NPL figures and adjusted CARs.
The banks that emerge strongest will be those that can combine conservative risk practices with agile, tech-driven lending models. Consolidation is also likely, as weaker players seek merger partners to meet capital requirements and expand their footprints.
Conclusion
According to experts, the end of the CBN’s forbearance regime is more than a footnote in Nigeria’s post-pandemic economic story.
Rather, it is a signal of systemic transition. Banks are now being asked to face their risks head-on, without regulatory insulation.
In doing so, the industry may find itself bruised but ultimately more resilient.
This new chapter shows that there are no more safety nets. It is time to walk the tightrope.