Banks Face Rising Bad Loan Pressure After CBN Ends COVID 19 Relief Measures

By Benson Daniel

Nigerian banks are experiencing renewed pressure on their asset quality following the withdrawal of the Central Bank of Nigeria’s COVID 19 regulatory forbearance, with non performing loans rising above the apex bank’s prudential threshold.

The end of the temporary relief measures has compelled banks to reclassify previously restructured loans based on their actual repayment performance, resulting in a noticeable increase in bad loan ratios across parts of the banking industry.

The COVID 19 forbearance programme was introduced by the Central Bank of Nigeria during the pandemic to cushion the impact of the economic downturn by allowing financial institutions to restructure loans granted to businesses and individuals affected by the crisis without immediately classifying them as non performing.

With the regulatory support now withdrawn, lenders are required to apply standard prudential guidelines in assessing the quality of their loan portfolios, exposing weaker assets that had remained under temporary regulatory relief.

Financial analysts said the development has pushed the non performing loan ratio of some banks above the CBN’s maximum prudential benchmark of five per cent, raising concerns over credit risk and provisioning requirements.

According to industry experts, banks may now be required to make higher impairment provisions against delinquent loans, a move that could weigh on profitability despite the sector’s strong earnings momentum in recent quarters.

They noted, however, that the Nigerian banking industry remains adequately capitalised, with most lenders maintaining healthy liquidity positions and sufficient capital buffers to absorb potential credit losses.

Market observers also expect banks to adopt stricter lending standards and intensify loan recovery efforts while focusing on sectors with stronger repayment capacity to preserve asset quality.

The development comes as lenders continue to implement recapitalisation plans in line with the Central Bank’s new minimum capital requirements, a process expected to strengthen the resilience of the banking sector over the long term.

Analysts believe the withdrawal of the COVID 19 relief measures marks a return to normal regulatory supervision and will encourage greater transparency in financial reporting, even though it may temporarily increase pressure on banks’ balance sheets.

They added that sustained economic growth, lower inflation and improved business conditions will be critical to reducing non performing loans and strengthening the overall health of Nigeria’s banking industry in the coming years.