COVID-19 forbearance withdrawal pushes Nigerian banks' bad loans above CBN limit

Nigerian banks are facing a significant increase in Non-Performing Loans (NPLs), with the ratio climbing to 9.94% in the first quarter of 2026. This figure substantially surpasses the Central Bank of Nigeria's (CBN) prudential benchmark of 5.0 percent. The rise is directly linked to the withdrawal of the CBN's COVID-19 regulatory forbearance measures, which had been in place to support borrowers and ensure financial stability during the pandemic.

The CBN's first quarter 2026 Economic Report detailed that the NPL ratio escalated by 2.43 percentage points from 7.51% in the preceding quarter. The apex bank stated that the removal of these long-standing relief measures was intended to promote greater transparency and accountability within the banking system, inadvertently exposing previously restructured or distressed loans.

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With the withdrawal of the Bank’s long-standing COVID-19-related forbearance measures to promote transparency and accountability in the banking system, the non-performing loans (NPLs) ratio stood at 9.94 per cent, above the 5.00 per cent threshold.

Despite the concerning trend in asset quality, the Nigerian banking industry has demonstrated continued resilience. Key financial soundness indicators remain robust. The banking sector's Liquidity Ratio (LR) increased to 67.32% in Q1'26, well above the statutory minimum of 30%. Similarly, the Capital Adequacy Ratio (CAR) improved to 13.19%, exceeding the 10% regulatory minimum. These figures indicate the sector's capacity to meet short-term obligations and absorb potential shocks.

Credit extended by Other Depository Corporations (ODCs) to the economy also saw a rise, increasing by 5.95% to N60.73 trillion in Q1'26. The services sector received the largest share of this credit. However, the report notes a weakening in consumer lending during the period, suggesting a mixed outlook for credit expansion.

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The Nigerian banking sector remained resilient and stable, as reflected in the performance of key financial soundness indicators, most of which were within regulatory thresholds.