Withdrawal of COVID-19 Forbearance pushes banks’ bad loans above CBN limit
By Elizabeth Adegbesan
The Central Bank of Nigeria (CBN) has reported a rise in the Non-Performing Loans (NPLs) ratio for banks, now at 9.94% in the first quarter of 2026, following the withdrawal of COVID-19 regulatory forbearance measures. This figure significantly exceeds the CBN’s prudential benchmark of 5%.
The increase was detailed in the CBN’s Economic Report for the first quarter of 2026, which linked the spike to the cessation of pandemic-era relief measures aimed at supporting borrowers and bolstering the stability of the financial system.
According to the report, the NPL ratio rose by 2.43 percentage points from 7.51% in the fourth quarter of 2025. “With the withdrawal of the Bank’s long-standing COVID-19-related forbearance measures to promote transparency and accountability in the banking system, the non-performing loans ratio stood at 9.94%, above the 5% threshold,” the CBN stated. Despite this increase, the central bank emphasized that the Nigerian banking sector remains resilient, with key financial soundness indicators generally exceeding regulatory requirements.
The report further indicated that the liquidity ratio of the banking sector rose to 67.32% in Q1 2026, up from 57.22% in the previous quarter, well above the statutory minimum of 30%. The capital adequacy ratio also improved, increasing by 0.84 percentage points to 13.19%, surpassing the regulatory minimum of 10%.
The CBN noted that the stronger liquidity position demonstrates banks’ capacity to meet short-term obligations while continuing to provide credit to the economy. The improved capital position highlights the industry’s resilience against potential credit and market shocks.
“Overall, the Nigerian banking sector remains resilient and stable, as reflected in the performance of key financial soundness indicators, most of which are within regulatory thresholds,” the report stated.
In addition, lending by Other Depository Corporations (ODCs) to the economy increased by 5.95% to N60.73 trillion in Q1 2026, compared to N57.32 trillion in Q4 2025. This growth indicates ongoing support for productive sectors despite a challenging monetary environment.
The services sector received the largest share of total credit, accounting for 59.54%, followed by industry at 34.10%, while agriculture received 6.36%. However, consumer lending experienced a decline during this period.
The report suggests that while the banking sector remains adequately capitalized and liquid, the termination of COVID-19 forbearance measures has unveiled previously restructured or distressed loans, resulting in a noticeable deterioration in asset quality despite ongoing lending to critical sectors of the economy.
