Tough Days Ahead for Banks as CBN Closes Easy-money Window
- The CBN ended its COVID-19 loan forbearance, pushing the industry’s non-performing loan ratio to about 7%, above the regulatory limit
- The rise in bad loans reflects delayed recognition of existing problems, especially in FX-sensitive sectors like power, manufacturing, aviation, and oil marketing
- While major banks remain stable, smaller and sector-exposed banks may face pressure as impairment charges rise alongside ongoing recapitalisation efforts
Legit.ng journalist Victor Enengedi has over a decade's experience covering energy, MSMEs, technology, banking and the economy.
The CBN officially ended its COVID-19 support for restructured loans on June 30, 2025. Following this move, some banks have started to report losses that had been hidden for years.
These losses are linked to foreign exchange shocks, fuel subsidy removal, and weak sectors of the economy.
Source: UGC
According to The Sun, this development follows the CBN’s latest macroeconomic outlook report, which showed that bad loans in the banking sector have increased since the relief period ended.
The report said the ratio of Non-Performing Loans (NPLs) was expected to rise slightly to between 5.0% and 5.5% in 2025. However, current estimates now put the figure at about 7%, above the regulatory limit.
The CBN explained that this rise is mainly due to the removal of temporary reliefs that allowed banks to delay recognising troubled loans during the pandemic.
Why bad loans are rising
Although the higher NPL figure has caused concern, the CBN and industry experts say it does not mean the banking system is in danger. Instead, they see it as a necessary clean-up after years of relaxed rules that kept problems hidden.
The loan relief policy started in 2020 when Nigeria faced multiple shocks from COVID-19, falling oil prices, and foreign exchange shortages. Banks were allowed to restructure loans without classifying them as bad, especially in sectors like aviation, hospitality, manufacturing, and oil services.
Over time, this temporary support became almost permanent. By 2023, many large loans in power, oil marketing, telecoms, and real estate had been restructured several times under regulatory flexibility.
Things changed sharply in 2023 and 2024 when the government removed fuel subsidies, allowed the naira to float, cleared FX backlogs, and tightened monetary policy.
These reforms increased costs for businesses. Energy-dependent companies saw expenses rise sharply, while manufacturers struggled with limited access to foreign exchange and unstable prices.
What it means for banks
The sectors most affected include power and gas, manufacturing and fast-moving consumer goods, aviation, and downstream oil marketing.
The end of loan relief has also come at a time when the CBN is pushing banks to raise fresh capital through a recapitalisation programme.
While most large banks entered 2025 with strong capital levels above 15%, rising loan losses are beginning to reduce their safety buffers.
Source: Getty Images
There are no immediate signs of bank failures, but smaller banks and those heavily exposed to certain sectors may face more pressure.
Going forward, banks can no longer depend on easy profits from low-risk strategies. They are now being forced to return to their main role, lending responsibly, managing risks carefully, and making profits in a challenging economic environment.
Source: Legit.ng
