By David Akinmola
Nigeria’s banking industry is facing renewed asset quality concerns as the ratio of non-performing loans (NPLs) climbed to 8.03 per cent, seven months after the Central Bank of Nigeria (CBN) intensified its crackdown on regulatory forbearance and loan restructuring practices.
The latest figure represents a significant deviation from the prudential benchmark of five per cent prescribed by regulators, raising concerns about growing credit risks within the financial system amid prevailing economic pressures.
The increase comes as banks continue to grapple with the impact of high interest rates, foreign exchange volatility, inflationary pressures and the lingering effects of economic reforms on borrowers’ repayment capacity.
Industry analysts said the rise in bad loans reflects the challenges facing businesses and households struggling to meet debt obligations in a tight operating environment, despite the banking sector’s overall resilience and strong capital position.
The development follows measures introduced by the CBN to tighten oversight of forbearance arrangements granted to borrowers and encourage lenders to recognise impaired assets more transparently.
Financial experts noted that while the regulatory action has improved the quality of risk reporting, it has also exposed underlying vulnerabilities in some loan portfolios that had previously benefited from restructuring and temporary relief measures.
A banking analyst, Johnson Chukwu, said the increase in NPLs was not entirely unexpected given current economic realities.
“When regulators tighten forbearance rules, some loans that were previously classified as performing naturally migrate into the non-performing category. It is a reflection of asset quality pressures rather than an indication of systemic weakness,” he said.
Stakeholders, however, maintained that Nigerian banks remain adequately capitalised to absorb potential shocks, particularly following the ongoing recapitalisation programme designed to strengthen the industry’s capacity to support economic growth.
Managing Director of a leading commercial bank, who preferred not to be named, noted that lenders have intensified loan recovery efforts and enhanced risk management frameworks to contain further deterioration in asset quality.
“We are seeing banks become more selective in credit creation while focusing on sectors with stronger cash flow prospects and lower default risks,” he said.
Market observers said the rising NPL ratio could influence lending decisions in the coming months, with banks expected to adopt stricter credit assessment standards and increase provisions for impaired loans.
They added that sustained economic growth, improved business conditions and exchange rate stability would be critical to reversing the trend and restoring asset quality to regulatory thresholds.
Despite the increase in bad loans, analysts believe the banking sector remains fundamentally strong, supported by robust earnings, improved capital buffers and ongoing regulatory reforms aimed at preserving financial system stability.
