CBN’s $4.01bn Forbearance Loans Under Review as Nigeria Plans Gradual Phase-Out
A new report by Renaissance Capital Africa has revealed that the Central Bank of Nigeria (CBN) extended a total of $4.01 billion in regulatory forbearance loans to FBN Holdings and six other Nigerian banks, with FBN alone accounting for $535 million. These loans were part of emergency measures introduced in 2020 to cushion the financial sector against the economic disruptions caused by the COVID-19 pandemic. As Nigeria’s banking regulator signals an intention to gradually end these relief measures, industry stakeholders are bracing for potential impacts on capital adequacy and liquidity.
The CBN introduced regulatory forbearance in March 2020, applying measures such as a one-year moratorium on principal repayments and interest rate reductions for its intervention facilities. These actions helped banks maintain stability, keeping the sector’s non-performing loan (NPL) ratio below the 5% benchmark. However, as economic conditions improve, the CBN now aims to phase out these measures in a structured, sector-by-sector approach to avoid destabilizing the financial system.
According to Renaissance Capital, the oil and gas sector—which received the bulk of the restructured loans—will likely be the last to exit the forbearance regime, following sectors like power and agriculture. The report warns that banks may need to absorb up to 10% provisioning through equity reserves, which could put moderate pressure on their Capital Adequacy Ratios (CARs). Projections show varying impacts on different banks, with Access Bank, FCMB, and Fidelity Bank likely to experience the most significant declines in CARs.
Some banks, like GTCO and Zenith, have already begun provisioning in anticipation of the phase-out. GTCO, for instance, has covered 80% of its forbearance loans, while Zenith has provisioned 20%. Encouragingly, FBN Holdings reported improved repayment performance from major borrowers like Aiteo Group, signaling a potential rebound in certain sectors. The report emphasizes that while the transition poses challenges, proactive strategies and improving borrower health can cushion its effects.
In a worst-case scenario where these loans are classified as NPLs and banks must take a 10% charge through their profit and loss statements, most affected banks—excluding Access Bank and GTCO—would see their NPL ratios exceed the regulatory threshold. Nevertheless, Renaissance Capital believes the banks are financially equipped to handle the shift, given their low projected cost-of-risk levels for 2024. The report concludes that while a full reversal of the forbearance policy is unlikely to be avoided, Nigerian banks are, in general, well-positioned to manage the upcoming regulatory transition.
Source: This day