After nearly five years of regulatory leniency, Nigeria’s banking sector is confronting a long-postponed reality: the true quality of its loan portfolios. The Central Bank of Nigeria (CBN) formally ended its COVID-19-era forbearance on restructured loans on June 30, 2025, forcing banks to recognize previously deferred impairments tied to foreign-exchange volatility, subsidy removal, and structurally weak sectors.
The CBN’s recent macroeconomic report revealed that non-performing loans (NPLs) in the banking sector rose to an estimated 7% in 2025, surpassing regulatory thresholds. While some market observers raised alarms, both the central bank and industry insiders insist this is not a crisis but the necessary end of Nigeria’s so-called “financial repression era,” during which regulatory flexibility masked underlying weaknesses.
Forbearance measures were first introduced in 2020 as the economy struggled with the combined shocks of COVID-19, plummeting oil prices, and FX shortages. Initially temporary, these measures gradually became a structural cushion for major sectors, including power, downstream oil, telecom infrastructure, aviation, and real estate. By 2023, many large-ticket loans had been repeatedly rolled over under regulatory indulgence, hiding stress that only became apparent after the CBN policy reset.
The post-pandemic period brought additional shocks: fuel subsidy removal, naira floatation, and tighter monetary policies increased operating costs for energy-intensive firms and squeezed import-dependent manufacturers. Analysts note that the rise in NPLs largely reflects delayed recognition of legacy exposures rather than a surge in new delinquencies. Sectors most exposed include power and gas, FMCG, aviation, and downstream oil marketing.
With interest rates on naira loans now averaging 28–32% and FX loans priced well above SOFR plus country risk premiums, Nigerian banks are being forced to return to disciplined lending and risk-based pricing. While tier-1 banks maintain strong capital buffers, smaller lenders with concentrated sector exposure could face increased pressure. For corporate borrowers, the post-forbearance environment is unforgiving, emphasizing the need for realistic financial management in a rapidly evolving macroeconomic landscape.
source: The sun