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Non-performing loans (NPLs) in Nigeria’s banking sector climbed to 8.03 per cent in January 2026, months after the Central Bank of Nigeria (CBN) withdrew regulatory forbearance previously granted to banks on certain credit exposures and single obligor limit breaches.
Data contained in the CBN’s January 2026 Economic Report showed that the industry’s bad loan ratio increased by 0.52 percentage points from 7.51 per cent recorded in December 2025, remaining significantly above the apex bank’s prudential threshold of five per cent.
The development signals growing pressure on asset quality within the banking industry, as lenders adjust to stricter loan classification rules following the expiration of temporary regulatory relief measures.
“Following the bank’s loan reclassification after the withdrawal of forbearance, the non-performing loans ratio rose by 0.52 percentage point to 8.03 per cent compared with the level in the preceding period and was above the 5.00 per cent prudential threshold,” the CBN stated.
The increase follows the apex bank’s June 2025 directive requiring banks still benefiting from regulatory forbearance on credit exposures or single obligor limit waivers to suspend dividend payments, defer bonuses to directors and senior management, and halt investments in foreign subsidiaries or offshore businesses.
The measure was introduced to strengthen capital buffers, improve balance sheet resilience, and compel affected institutions to retain earnings while gradually exiting temporary relief arrangements.
The CBN also ended COVID-19-related regulatory forbearance and waivers on single obligor limits effective June 30, 2025, requiring banks to align restructured credit facilities with existing prudential standards.
During the pandemic, regulatory forbearance allowed banks to restructure distressed loans without immediately classifying them as non-performing. However, the withdrawal of these concessions has forced lenders to reassess previously protected facilities, resulting in a rise in recognised bad loans across the sector.
Analysts say the latest figures reflect the beginning of a broader clean-up process, as weaker loan assets that had been cushioned under regulatory relief are now being reclassified in line with conventional risk standards.
In its macroeconomic outlook, the CBN warned that a sustained increase in bad loans could weaken financial stability and erode banks’ balance sheets.
“A significant rise in non-performing loans could impair asset quality and weaken banks’ balance sheets, thereby posing systemic risk,” the apex bank cautioned.
To strengthen loan recovery and credit discipline, the regulator also called for deeper operational integration of the Global Standing Instruction (GSI) framework across financial institutions.
The GSI framework enables banks to recover overdue obligations from borrowers’ accounts held across multiple financial institutions, helping reduce loan defaults and improve repayment culture.
The latest measures build on earlier regulatory interventions introduced by the CBN to improve governance and reduce risk within the banking system.
In February 2025, the apex bank directed bank directors with non-performing insider-related loans to resign immediately from their positions.
Insider-related loans refer to facilities granted to directors, executives, employees, major shareholders, or related parties of a financial institution.
According to the CBN, affected banks were instructed to recover such loans through collateral enforcement, including the seizure of shareholdings linked to defaulting directors.
“Directors with non-performing insider-related facilities are required to step down immediately from the board, while the bank should commence immediate remediation of the loans through the recovery of collateral, including the shareholdings of the affected directors,” the regulator said.
More recently, the central bank intensified efforts to improve credit discipline by restricting access to banking services and additional credit facilities for large-ticket borrowers with non-performing loans.
In a directive dated March 12, 2026, and signed by the Director of Banking Supervision, Dr Muhammad Abdullahi, the CBN instructed financial institutions to deny additional credit to obligors whose loan facilities have been classified as non-performing and recorded in the Credit Risk Management System (CRMS) or licensed private credit bureaus.
The restriction also extends to banking services such as letters of credit, performance bonds, advance payment guarantees, and bankers’ confirmations.
According to the apex bank, the directive targets large obligors whose loan exposures could materially impact a bank’s capital adequacy ratio or exceed prudential lending thresholds.
Financial institutions were also instructed to obtain additional realisable collateral from affected borrowers to secure outstanding exposures.
Despite the deterioration in asset quality, the CBN maintained that Nigeria’s banking system remained resilient.
The report showed that the industry’s liquidity ratio improved to 63.38 per cent in January from 57.22 per cent in December, remaining comfortably above the regulatory minimum of 30 per cent.
Similarly, the capital adequacy ratio stood at 12.05 per cent, slightly below 12.35 per cent recorded in December but still above the 10 per cent minimum threshold.
“The Nigerian banking industry remained resilient, with most financial soundness indicators staying within prudential regulatory thresholds, affirming financial stability and institutional soundness,” the CBN noted.
However, the rise in bad loans points to growing stress from legacy credit exposures, elevated borrowing costs, currency pressures, and stricter prudential standards.
Members of the CBN’s Monetary Policy Committee (MPC) had earlier flagged worsening asset quality as a potential risk to financial system stability.
Speaking during the February 2026 MPC meeting, the CBN’s Deputy Governor for Economic Policy, Dr Muhammad Abdullahi, warned that rising bad loans could weaken monetary policy transmission and threaten broader financial stability if left unchecked.
“Additionally, rising NPLs could pose financial stability risks, and the broader macroeconomy needs to rebalance growth and stability objectives,” Abdullahi said.
He noted that the challenge was occurring alongside persistent excess liquidity within the banking system, warning that both conditions could reduce the effectiveness of monetary policy interventions and weaken credit allocation to productive sectors.
Echoing similar concerns, MPC member and corporate governance expert Aku Odinkemelu stressed the need for heightened regulatory oversight.
“The increase in non-performing loans within the banking system underscores the need for heightened supervisory vigilance to safeguard asset quality and ensure effective credit transmission,” she said.
While liquidity and capital buffers remain relatively strong, the growing volume of bad loans suggests regulators may continue tightening supervision as banks navigate the post-forbearance environment and adjust to tougher credit risk standards.
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