The Central Bank of Nigeria (CBN) has officially closed a major easy-money window for commercial banks, setting the stage for a period of increased financial pressure as hidden losses come to light. The regulator ended its COVID-19 era loan forbearance programme on June 30, 2025, a move that has already driven the industry's aggregate non-performing loan (NPL) ratio to approximately 7%.
The Unmasking of Hidden Loan Losses
This critical 7% figure surpasses the CBN's regulatory limit and marks a significant jump from earlier projections. The bank's own macroeconomic outlook report for 2025 had anticipated the NPL ratio rising only slightly to between 5.0% and 5.5%. The sharper increase is a direct consequence of the termination of temporary relief measures that allowed lenders to delay classifying troubled loans as non-performing during the pandemic's economic upheaval.
Financial analysts, including those from Coronation Research, clarify that this surge does not necessarily indicate a wave of new loan defaults. Instead, it represents a delayed recognition of pre-existing problems, particularly within sectors highly sensitive to foreign exchange shocks and other macroeconomic reforms.
Sectors in the Eye of the Storm
The pain is not evenly distributed across the economy. The most affected sectors are those that faced the combined brunt of the naira floatation, fuel subsidy removal, and lingering foreign exchange access issues. Banks with significant exposure to the following industries are seeing the most pronounced impact:
- Power and Gas: Struggling with soaring operational costs.
- Manufacturing and Fast-Moving Consumer Goods (FMCG): Hampered by FX instability and high energy prices.
- Aviation: Grappling with high fuel costs and dollar-denominated obligations.
- Downstream Oil Marketing: Impacted by the removal of fuel subsidies.
The loan relief policy, initiated in 2020 to cushion the effects of COVID-19, falling oil prices, and FX shortages, permitted banks to repeatedly restructure loans without tagging them as bad. Over time, this flexibility became entrenched, with many large loans in power, oil marketing, telecoms, and real estate being restructured multiple times.
Implications for Bank Stability and Recapitalisation
The end of regulatory forbearance coincides with the CBN's ongoing push for banks to recapitalise and strengthen their balance sheets. While major banking institutions entered 2025 with robust capital adequacy ratios above 15%, the rising impairment charges from newly classified bad loans are beginning to erode these safety buffers.
Industry experts and the CBN itself assert that the banking system is not in immediate danger of collapse. The current situation is widely viewed as a necessary accounting clean-up and a return to stricter risk management after years of relaxed rules. However, the landscape will be challenging.
Smaller banks and those with concentrated exposure to the hardest-hit sectors are likely to face intensified pressure. The era of easy profits from low-risk regulatory arbitrage is over. Banks are now compelled to refocus on their core functions: prudent lending, diligent risk management, and generating sustainable profits within a complex and demanding economic environment.
The coming months will test the resilience of Nigeria's financial institutions as they navigate this new phase of transparency and adjusted regulatory expectations.
