CBN’s Policy Shift Threatens Bank Profits and Capital Stability

Nigerian banks may face lower profits and heightened capital stress as the Central Bank of Nigeria (CBN) moves to end the regulatory forbearance measures introduced during the COVID-19 pandemic.

The CBN has issued a directive asking banks that previously benefited from leniency on credit exposure limits and loan restructuring to suspend dividend payouts, defer executive bonuses, and stop making new foreign investments.

This change comes as banks are already managing growing loan defaults caused by Nigeria’s economic fragility and foreign exchange instability. The forbearance policy, introduced in March 2020, allowed banks to restructure loans in critical sectors such as oil and gas, agriculture, and power without classifying them as non-performing. However, with the shifting monetary environment, the CBN is now reversing that stance.

Recent data reveals that ten listed banks incurred a total of ₦3.77 trillion in loan impairment charges between 2023 and the first quarter of 2025. These losses have steadily increased, with ₦1.34 trillion recorded in 2023, ₦2.13 trillion in 2024, and an additional ₦297 billion in Q1 2025 alone—reflecting the scale of credit risk in the banking industry.

One of the major concerns is that seven large banks are carrying approximately $4 billion in restructured loans, particularly in the oil and gas sector. If these loans require new provisioning of just 10% through shareholders’ equity, several banks could experience a significant drop in their capital adequacy ratios (CAR), putting regulatory compliance at risk.

The phasing out of forbearance also raises the possibility of increased non-performing loan (NPL) ratios. Reclassifying restructured loans as NPLs could see default rates spike across the sector, especially for institutions like FCMB, UBA, Zenith Bank, and FBN Holdings. Only Access Bank and GTCO are currently projected to stay below the CBN’s regulatory 5% NPL threshold.

Despite these pressures, most major banks remain well-positioned to absorb potential losses. Zenith Bank, for instance, maintains a high NPL coverage ratio of 298.4%, while GTCO and Fidelity Bank also hold strong provisioning buffers. However, weaker institutions such as UBA and FirstBank Holdings may require additional capital to maintain stability.

In the months ahead, Nigerian banks will need to navigate a more disciplined regulatory environment, manage their capital conservatively, and reassess risk exposure across sectors. While the largest and best-capitalized banks may weather the transition smoothly, others may face tougher decisions as profitability and capital strength come under renewed scrutiny.