Loans for Nigerian Banks: Abuja, Nigeria – The Central Bank of Nigeria (CBN) has recently re-emphasitized its stance on regulatory forbearance, particularly for Nigerian banks with significant exposures, signaling a new phase in its efforts to bolster the stability and resilience of the nation’s financial sector. This move, which has seen the apex bank direct beneficiaries of forbearance to suspend dividend payments, defer executive bonuses, and halt new investments in foreign subsidiaries, marks a significant shift from the pandemic-era relief measures.
What is Regulatory Forbearance?
Regulatory forbearance is a temporary measure granted by central banks to financial institutions, allowing them a reprieve from certain regulatory requirements. In the context of Nigerian banks, this typically involved allowing them to restructure loans to struggling sectors, such as oil and gas or agriculture, without immediately classifying them as non-performing (NPLs). Introduced in March 2020 at the height of the COVID-19 crisis, this policy was instrumental in keeping the sector-wide NPL ratio below the 5% regulatory threshold despite severe macroeconomic disruptions.
The Genesis of the Recent Directive
While regulatory forbearance played a crucial role in preventing a larger banking crisis during the pandemic, the CBN has gradually been phasing out these measures. The latest directive, issued on June 13, 2025, reflects the CBN’s determination to ensure that banks operating under forbearance strengthen their financial resilience and fully comply with capital adequacy and loan provisioning standards.
The CBN believes that allowing banks to pay dividends and bonuses while still benefiting from forbearance may distort their true financial health and hinder necessary capital retention. Some financial analysts have noted that while forbearance loans may not reflect as non-performing in accounting profits (often classified as Stage 2 loans under IFRS 9), they can inflate reported profits when interest income is recognized before cash is actually received. The CBN’s focus is now firmly on improving cash-based profitability metrics and ensuring robust capital buffers.
Impact on Nigerian Banks
The directive has sent ripples through the Nigerian banking sector and the stock market. Banks with substantial forbearance exposures, such as Zenith Bank, First Holdco, Access Corporation, Fidelity Bank, and FCMB, have seen their share prices experience increased volatility and declines. This is largely due to concerns about their ability to raise capital at attractive valuations, especially with the 2026 recapitalization deadline looming.
Estimates from financial institutions like Renaissance Capital indicate that several prominent Nigerian banks hold billions of dollars in “forborne” loans, predominantly concentrated in the oil and gas sector. The suspension of dividend payments and executive bonuses aims to ensure that internally generated funds are retained to shore up capital and strengthen balance sheets.
CBN’s Rationale and Future Outlook
The CBN has clarified that these measures are routine, transitional guidance for banks navigating post-forbearance adjustments, and not a cause for widespread concern about the health of the banking sector. The apex bank emphasizes that Nigeria’s risk-based capital requirements are significantly more stringent than global Basel III minimums, highlighting its commitment to maintaining a robust financial system.
The restrictions are temporary and will be lifted once affected banks fully exit the forbearance regime and demonstrate compliance with capital adequacy and provisioning standards, validated through independent assessments. Zenith Bank, for instance, has already announced its plans to fully exit its regulatory forbearance arrangement by June 30, 2025, having surpassed the new regulatory capital requirement of N500 billion.
While the short-term impact on valuations and recapitalization strategies remains a critical concern for some banks and investors, the CBN’s proactive stance is seen by many as a necessary step towards fostering a more stable, resilient, and transparent banking sector in Nigeria. The ultimate goal is to ensure that Nigerian banks are adequately capitalized and prepared to support sustainable economic growth, relying on real cash flow rather than accounting profits as the true measure of their financial health.
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