The Central Bank of Nigeria (CBN) has officially ended its post-COVID regulatory forbearance program, signaling a new era of orthodox oversight for the banking sector. Forbearance measures, which were introduced to cushion the financial blow of the pandemic and subsequent global shocks, allowed banks to restructure loans, defer recognizing non-performing loans (NPLs), and delay provisioning. With the economy now stabilizing, banks are expected to operate without the safety net of regulatory indulgence and manage risk using stricter, more transparent practices.
This policy change has already rippled across financial markets, causing investor anxiety. The Nigerian Stock Exchange experienced a 45 basis-point drop in the All Share Index, with market capitalisation falling by nearly ₦291 billion over two trading sessions. Banks like Zenith, Access, GTCO, and UBA—many of which hold billions in forborne loans, particularly in the oil and gas sector—are now under pressure to improve loan classification and enhance capital adequacy. Institutions still under the forbearance regime have been restricted from paying dividends or making foreign investments until they meet CBN’s compliance standards.
With the forbearance reversal, banks must now reflect the true state of their loan books, revealing legacy NPLs previously hidden under relaxed accounting. The average NPL ratio stood at 4.5% in 2024, but analysts believe this figure was artificially low due to the previous regulatory shields. Consequently, banks like Union Bank and Fidelity Bank have reported significant increases in loan impairments in 2025. This will likely impact earnings, as higher provisioning eats into profits and retained earnings—affecting capital adequacy ratios especially for Tier-2 banks.
Stricter regulations are expected to result in more cautious lending practices. Small businesses and sectors like agriculture and manufacturing, which previously benefitted from easier credit, now face tougher terms. Experts warn that this could slow credit growth and weigh on economic expansion, which is already forecasted to drop from 3.4% in 2024 to 2.8% in 2025. Banks are demanding more collateral and upfront payments, making it harder for SMEs to access finance—threatening a segment crucial for job creation and productivity.
While some experts applaud the CBN’s return to disciplined supervision, others highlight looming risks. The banking sector must invest in stronger risk management and data-driven lending, especially as fintechs outpace traditional banks in speed and accessibility. There’s also growing concern over the role of non-bank subsidiaries and the possibility of shadow banking. Liquidity challenges, investor skepticism, and capital adequacy pressures could prompt mergers and consolidation. Ultimately, this transition is seen as necessary for long-term resilience, but the next 12–18 months will test the sector’s ability to adapt.
Source: The Sun