Nigeria banking bad loans increased in 2025 after the Central Bank of Nigeria withdrew regulatory forbearance measures introduced during the COVID-19 pandemic. The apex bank’s latest macroeconomic outlook report shows that the industry’s Non-Performing Loans ratio climbed to an estimated seven per cent, breaching the prudential benchmark of five per cent. The CBN linked the rise directly to the exit from temporary reliefs that allowed banks to restructure distressed loans without classifying them as non-performing.
The report explains that once the forbearance ended, several previously restructured facilities crystallised as bad loans. This shift pushed the industry-wide ratio above the regulatory ceiling. Despite this deterioration in asset quality, the CBN said Nigeria’s financial system remained broadly stable during the year, supported by strong capital buffers and ample liquidity.
Why Nigeria banking bad loans increased in 2025
Regulatory forbearance gave banks room to support borrowers affected by pandemic-related disruptions. Under the framework, lenders restructured loans without triggering immediate NPL classification. When the CBN withdrew the measure, banks had to reassess those exposures under standard prudential rules.
As a result, loans that borrowers still struggled to service moved into the non-performing category. The CBN said this adjustment explains the sharp rise in Nigeria banking bad loans, rather than a sudden collapse in credit quality. The change marks a transition from crisis support to normalised supervision.
Financial system remains resilient despite NPL rise
Although bad loans exceeded the benchmark, the CBN stressed that key stability indicators stayed strong. The industry liquidity ratio averaged 65 per cent, well above the 30 per cent minimum requirement. The capital adequacy ratio stood at 11.6 per cent, exceeding the 10 per cent regulatory threshold.
According to the apex bank, these buffers give lenders capacity to absorb shocks. Strong interest income, continued digital transformation, and the ongoing recapitalisation programme have supported balance sheet resilience. The CBN said these factors helped sustain confidence across the banking system in 2025.
Read Also
COP30 policymaking shapes Africa’s economic outlook
Cornerstone Insurance strengthens market presence
Recapitalisation and regulatory actions support stability
The CBN highlighted bank recapitalisation as a key pillar of stability. The policy raises minimum capital requirements and aims to strengthen balance sheets. With stronger capital, banks can support the real sector through larger-ticket lending while managing risk more effectively.
The report also noted that macro-prudential guidelines and tighter oversight helped maintain market confidence. The capital market remained bullish during the year, reflecting renewed investor interest in financial stocks. Still, the rise in Nigeria banking bad loans signals emerging vulnerabilities.
Risks from higher rates and weaker borrowers
The apex bank warned that a significant further increase in non-performing loans could impair asset quality and weaken balance sheets. Higher interest rates and challenging economic conditions have strained some borrowers’ repayment capacity. These pressures create downside risks if not properly managed.
To address this, the CBN emphasised the need for strict credit risk monitoring. It urged banks to sustain prudential discipline and improve loan recovery processes. According to the report, early intervention remains critical to preventing systemic stress.
GSI framework and credit discipline focus
The CBN recommended deepening operational integration of the Global Standing Instruction framework across all financial institutions. The GSI allows lenders to recover overdue loans from borrowers’ accounts held with other banks.
Full integration, the CBN said, would improve recovery efficiency and strengthen credit discipline. Better repayment behaviour would enhance MSME and retail loan performance, reduce operational losses, and help banks build stronger capital buffers over time.
Monetary policy and forward outlook
Monetary conditions remained tight for most of 2025 as the CBN prioritised price and exchange rate stability. After aggressive rate hikes in 2024, the Monetary Policy Rate eased slightly in September 2025 following signs of improved macro stability.
Looking ahead, the CBN said the sector outlook remains positive. However, it cautioned that banks must continue improving risk management, diversifying loan portfolios, and maintaining strong capital positions. The recapitalisation programme, alongside foreign exchange and tax reforms, forms part of broader efforts to consolidate macroeconomic stability and boost investor confidence in 2026.
