Rising bad loans in Nigerian banks hit 8.03% in January 2026 as the CBN’s withdrawal of regulatory forbearance exposes weaker assets

The Central Bank of Nigeria has reported a further increase in Rising Bad Loans across the banking sector, with the industry’s non-performing loans ratio climbing to 8.03 per cent in January 2026, well above the regulatory threshold of five per cent.

Also read: CBN tight policy slows credit growth, analysts warn

The figure, contained in the CBN’s January 2026 Economic Report, represents an increase of 0.52 percentage point from 7.51 per cent recorded in December 2025 and highlights growing pressure on asset quality as banks adjust to the withdrawal of regulatory forbearance measures.

According to the apex bank, the deterioration followed the reclassification of loan exposures after the termination of temporary regulatory reliefs that had allowed lenders to restructure certain facilities without immediately classifying them as non-performing.

“Following the bank’s loan reclassification after the withdrawal of forbearance, the non-performing loans ratio rose by 0.52 percentage point to 8.03 per cent compared with the level in the preceding period and was above the 5.00 per cent prudential threshold,” the report stated.

The increase comes seven months after the CBN directed banks benefiting from regulatory forbearance on credit exposures and single obligor limit breaches to suspend dividend payments, defer executive bonuses and halt new investments in foreign subsidiaries.

The regulator introduced the measures in June 2025 as part of efforts to strengthen capital buffers, improve resilience and encourage banks to retain earnings while exiting temporary regulatory concessions.

Regulatory forbearance was initially introduced to help lenders manage the impact of economic disruptions, particularly during and after the COVID-19 pandemic.

However, with the relief measures now withdrawn, several previously restructured loans have been reclassified as non-performing, exposing underlying weaknesses in banks’ credit portfolios.

The latest figures suggest that the ongoing clean-up of bank balance sheets is revealing legacy credit risks that had been shielded by regulatory support.

Despite the rise in non-performing loans, the CBN maintained that the banking system remains stable and resilient.

The report showed that the industry’s liquidity ratio improved significantly to 63.38 per cent in January from 57.22 per cent in December, remaining comfortably above the regulatory minimum of 30 per cent.

Similarly, the capital adequacy ratio stood at 12.05 per cent, down slightly from 12.35 per cent recorded in December but still above the minimum requirement of 10 per cent.

“The Nigerian banking industry remained resilient, with most financial soundness indicators staying within prudential regulatory thresholds, affirming financial stability and institutional soundness,” the CBN stated.

Nevertheless, the regulator warned that Rising Bad Loans could pose a serious threat to financial stability if not properly managed.

In its macroeconomic outlook, the bank cautioned that a significant increase in non-performing loans could weaken balance sheets, impair asset quality and elevate systemic risks within the financial sector.

To address the challenge, the CBN recommended deeper integration of the Global Standing Instruction framework across financial institutions to improve loan recovery rates and strengthen credit discipline.

The regulator has also implemented a series of additional measures aimed at curbing credit risk.

In February 2025, the apex bank directed directors with non-performing insider-related loans to immediately resign from bank boards while institutions moved to recover outstanding obligations through collateral enforcement.

The directive targeted loans granted to directors, executives, major shareholders and related parties, which the regulator viewed as potential governance risks.

More recently, the CBN tightened restrictions on large borrowers with non-performing facilities.

Under a directive issued in March 2026 and signed by the Director of Banking Supervision, Dr Muhammad Abdullahi, affected borrowers were barred from accessing additional loans and certain banking services, including letters of credit, performance bonds and advance payment guarantees.

The CBN said the restrictions were intended to reduce systemic risks posed by large debtors whose defaults could significantly affect the financial health of lending institutions.

The worsening asset quality has also attracted attention from members of the Monetary Policy Committee.

During the committee’s February 2026 meeting, Deputy Governor for Economic Policy, Dr Muhammad Abdullahi, described the increase in non-performing loans as a growing concern for the financial system.

“Additionally, rising NPLs could pose financial stability risks, and the broader macroeconomy needs to rebalance growth and stability objectives,” Abdullahi said.

Monetary Policy Committee member Aku Odinkemelu similarly called for stronger supervisory oversight, warning that deteriorating loan quality could affect effective credit transmission within the economy.

“The increase in Non-Performing Loans within the banking system underscores the need for heightened supervisory vigilance to safeguard asset quality and ensure effective credit transmission,” Odinkemelu said.

Analysts say the latest figures reflect the combined impact of legacy credit exposures, currency depreciation, elevated interest rates and tighter regulatory classifications.

While strong liquidity and capital buffers continue to support confidence in the banking sector, the rise in bad loans highlights the challenges facing lenders as they adapt to stricter prudential standards and a more demanding operating environment.

Also read: CBN reassures banks amid recapitalisation delays

The development underscores the delicate balance regulators must maintain between preserving financial stability and ensuring banks accurately reflect credit risks on their balance sheets.