Banking Sector Braces for Impact as CBN Ends Forbearance, Triggering Sharp Rise in Official ‘Bad Loan’ Portfolios

The veil has been lifted on the true state of credit risk in Nigeria’s financial sector as the Central Bank of Nigeria (CBN) officially withdrew its long-standing regulatory forbearance. The move has led to an immediate and significant spike in the volume of Non-Performing Loans (NPLs) reported across the industry.

For the past several years, banks were permitted to restructure loans particularly for the power and oil sectors without labeling them as delinquent. However, as the new fiscal year begins, the CBN under Olayemi Cardoso has mandated that all banks must now accurately classify their loan books according to international best practices.

The data released by several commercial banks this week indicates that the industry-wide NPL ratio has jumped from an average of 4.2% in late 2025 to nearly 6.8%, surpassing the CBN’s prescribed 5% maximum for healthy institutions.

“We are finally moving toward a transparent financial system,” a senior official at the CBN stated. “Forbearance was a temporary cushion, but it cannot be a permanent solution. Banks must recognize these risks so they can adequately provide for them. This is the only way to build a banking sector that can withstand external shocks in 2026.”

The “spike” is causing ripples in the stock market, with banking stocks experiencing moderate volatility as investors weigh the impact of higher impairment charges on 2026 profit margins. Small and medium-sized banks are under particular pressure, as they now have to balance rising bad loans with the ongoing recapitalization exercise mandated by the apex bank.

Economic analysts have pointed out that the sectors most responsible for this surge Manufacturing and Agriculture have been hit hardest by the high interest rates and the “TIN” requirements of the 2025 Tax Reform Acts, which forced many informal borrowers out of the credit loop.

Despite the alarm, the CBN has reassured depositors that the system remains stable. The apex bank noted that the purpose of the withdrawal is to identify “weak links” early and ensure that banks are sufficiently capitalized to absorb any losses. For the Nigerian banking public, the message is clear: the era of “hidden” bad debt is over, and the path to 2026 prosperity will require a more disciplined approach to lending.