CBN Crackdown on Forbearance Exposes FirstHoldco, Others to Billions in Loan Risks

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The Central Bank of Nigeria (CBN) has taken a firm stance by reverting to orthodox monetary policy, enforcing stricter regulations that impact banks with high forbearance exposure. A new report by Renaissance Capital revealed FirstHoldco’s exposure at $887 million, while others like Zenith Bank and Access Bank face similar pressure due to their involvement in high-risk loans to companies such as Aiteo, 9mobile, and Wempco. The new CBN directive mandates the suspension of dividends, bonuses, and foreign investments for banks under regulatory forbearance, pending full provisioning and compliance.

This policy shift is part of a broader effort to boost financial discipline and eliminate long-standing regulatory leniency, particularly post-COVID-19. The CBN emphasized that these restrictions are temporary but necessary to restore the integrity of the banking sector. The move has had immediate market impact, with the NGX Banking Index falling 4% amid investor unease. Analysts see the policy as a corrective measure that will enhance balance sheet transparency and cash-flow accountability in the sector.

Renaissance Capital’s analysis further showed that forbearance is no longer just a matter of asset quality but now a cash flow problem, with several banks projected to post negative cash profits in the first half of 2025. FirstHoldco and Access Bank are among those expected to remain in negative territory due to substantial gaps between earned and received interest income. GTCO and Stanbic are exceptions, having already addressed their exposure, while others may need to issue new shares at lower valuations to meet capital requirements.

The impact of CBN’s policy is being felt in the stock market, where share prices of major banks, including Access Holdings, Zenith Bank, and UBA, have dropped significantly. The policy has sparked concern among investors who previously favored banking stocks for their dividend yields. Financial experts say while the market reaction is negative in the short term, it is a necessary adjustment for long-term stability.

With recapitalization looming and liquidity constraints deepening due to a 50% Cash Reserve Ratio, banks may struggle to meet lending targets for Nigeria’s $1 trillion economy ambition. Critics argue that the current liquidity structure undermines CBN’s recapitalization goals. Nonetheless, the CBN appears committed to cleaning up the sector, even as analysts predict dividend payments may not fully resume until 2028.

Source: This Day

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