Asset quality weakens in Nigeria Banking sector as NPLs climb to 8.03%

Nigeria’s banking sector recorded a further deterioration in asset quality in January 2026, as the non-performing loans (NPL) ratio climbed to 8.03%, reflecting the lingering impact of the Central Bank of Nigeria’s (CBN) withdrawal of key regulatory forbearance measures.

The latest figures, contained in the CBN’s January 2026 Economic Report, showed that the NPL ratio rose by 0.52 percentage points from 7.51% in December 2025, remaining significantly above the prudential benchmark of 5.0%.

The development comes about seven months after the apex bank ended regulatory forbearance policies that had previously allowed deposit money banks to restructure stressed loan portfolios without immediately classifying them as impaired.

With the policy reversal, banks were required to reclassify previously restructured facilities as non-performing where applicable.

According to the CBN, the worsening asset quality was directly linked to this reclassification exercise.

“The non-performing loans (NPLs) ratio rose by 0.52 percentage point to 8.03% compared with the level in the preceding period and was above the 5.00 per cent prudential threshold,” the report stated.

Despite the increase in bad loans, the banking sector maintained a strong liquidity position during the review period.

The industry liquidity ratio rose to 63.38% in January 2026 from 57.22% in December 2025, remaining well above the regulatory minimum requirement of 30%.

The improvement indicates that banks continue to hold sufficient liquid assets to meet short-term obligations and sustain lending and financial intermediation activities, even amid rising credit stress.

The Capital Adequacy Ratio (CAR) stood at 12.05% in January 2026, slightly lower than 12.35% recorded in December 2025, but still comfortably above the regulatory minimum of 10%.

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The CBN noted that the ratio reflects the sector’s continued ability to absorb potential losses arising from credit and market risks, despite increased pressure from impaired loan exposures.

Overall, the apex bank said the financial system remained resilient, with most key financial soundness indicators staying within prudential limits.

It noted that although asset quality had weakened, liquidity and capital buffers continued to support system stability and confidence in the banking sector.

However, the report also warned that the rise in non-performing loans exposes the industry to heightened credit risk, particularly as borrowers grapple with high interest rates, inflationary pressures and broader macroeconomic constraints.

The CBN cautioned that sustained increases in bad loans could negatively affect bank profitability, constrain credit expansion, and weaken risk resilience if not properly managed.

In response to rising credit risks, the CBN has directed banks to tighten access to credit for large borrowers with non-performing loan exposures.

Under the directive, borrowers whose loan accounts are classified as non-performing and recorded in the Credit Risk Management System (CRMS) or any licensed private credit bureau will be barred from accessing additional credit facilities.

The policy is part of broader efforts by the apex bank to strengthen credit discipline, reduce systemic risk, and protect the stability of the financial system.