Nigeria’s banking sector is coming under fresh pressure following the Central Bank of Nigeria’s decision to end regulatory forbearance introduced during the COVID-19 period, a move that has led to a noticeable increase in bad loans across the industry.
According to the CBN’s January 2026 Economic Report, the banking sector’s non performing loans ratio rose to 8.03 per cent from 7.51 per cent recorded in December 2025. The figure remains above the regulator’s prudential benchmark of five per cent, raising concerns about asset quality within the sector.
Why Bad Loans Are Rising
The increase follows the withdrawal of regulatory forbearance that previously allowed banks to restructure troubled loans without immediately classifying them as non performing.
During the pandemic and its aftermath, many borrowers faced financial difficulties, prompting the CBN to grant temporary relief measures that gave banks more flexibility in managing affected credit facilities.
With the expiration of those relief measures, banks have now been required to reclassify several previously restructured loans under standard prudential guidelines. As a result, a number of those facilities have been recognised as bad loans, pushing the industry’s non performing loans ratio higher.
CBN Moves to Strengthen Financial Discipline
The apex bank has maintained that the withdrawal of forbearance forms part of broader efforts to strengthen the banking sector and improve financial stability.
In June 2025, the CBN directed banks still operating under regulatory forbearance arrangements to suspend dividend payments, defer bonuses for directors and senior management, and halt new investments in foreign subsidiaries and offshore ventures.
The regulator said the measures were designed to strengthen capital buffers, improve balance sheet resilience, and ensure banks retain sufficient earnings during the transition period.
Banking Sector Remains Stable
Despite the increase in bad loans, the CBN insists that the wider banking system remains resilient.
Data from the report showed that the industry’s liquidity ratio remained well above regulatory requirements, while capital adequacy levels also stayed above the minimum benchmark required by regulators.
However, financial experts believe the latest figures highlight the challenges facing banks as they adjust to tighter regulations, high interest rates, foreign exchange pressures, and lingering credit risks.
What It Means for the Economy
The rise in non performing loans is expected to keep regulators focused on risk management and credit quality within the banking sector.
Analysts say stronger loan recovery efforts, improved credit discipline, and stricter lending standards could become increasingly important as banks work to protect their balance sheets.
While the financial system remains stable for now, the latest development reflects the ongoing adjustments taking place as Nigeria’s banking industry moves away from pandemic era support measures and returns to stricter regulatory oversight.
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