The withdrawal of the Central Bank of Nigeria’s (CBN) COVID-19 regulatory forbearance has pushed the banking sector’s Non-Performing Loans (NPLs) ratio above the apex bank’s approved threshold, highlighting the impact of the end of pandemic-era relief measures on the country’s financial system.
This was revealed in the CBN’s First Quarter 2026 Economic Report, which showed that the industry’s NPL ratio climbed to 9.94 per cent in the first quarter of 2026, significantly above the 5.0 per cent prudential benchmark set by the regulator.
According to the report, the NPL ratio increased by 2.43 percentage points, rising from 7.51 per cent in the fourth quarter of 2025 to 9.94 per cent in Q1 2026.
The apex bank explained that the sharp increase followed the withdrawal of the COVID-19 regulatory forbearance introduced during the pandemic to support struggling borrowers and maintain financial system stability.
“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 (NPLs) ratio stood at 9.94 per cent, above the 5.00 per cent threshold,” the CBN stated.
Despite the rise in bad loans, the Central Bank maintained that Nigeria’s banking sector remains stable and resilient, noting that key financial indicators continued to exceed regulatory requirements.
The report showed that the banking sector’s Liquidity Ratio (LR) rose to 67.32 per cent during the first quarter of 2026, compared to 57.22 per cent in the previous quarter. This remains well above the statutory minimum requirement of 30 per cent, indicating that banks still possess adequate liquidity to meet their short-term financial obligations.
Similarly, the Capital Adequacy Ratio (CAR) improved to 13.19 per cent, up from the previous quarter, remaining comfortably above the regulatory minimum of 10 per cent.
According to the CBN, the stronger liquidity position demonstrates the banking industry’s ability to continue supporting economic activities while meeting customer obligations, while the improved capital base enhances banks’ capacity to absorb potential financial shocks.
“The Nigerian banking sector remained resilient and stable, as reflected in the performance of key financial soundness indicators, most of which were within regulatory thresholds,” the report added.
The report also revealed that banks continued to increase lending despite the challenging operating environment.
Credit extended by Other Depository Corporations (ODCs) to the economy grew by 5.95 per cent, rising from ₦57.32 trillion in the fourth quarter of 2025 to ₦60.73 trillion in the first quarter of 2026.
Sectoral analysis showed that the services sector received the largest share of bank credit, accounting for 59.54 per cent of total loans, followed by the industrial sector with 34.10 per cent, while the agricultural sector accounted for 6.36 per cent.
However, the report noted that consumer lending declined during the period, suggesting that banks remained cautious in extending personal credit despite increased lending to productive sectors.
The CBN explained that while Nigerian banks remain adequately capitalised and liquid, the removal of COVID-19 relief measures exposed several previously restructured or distressed loans, resulting in a noticeable deterioration in asset quality.
The findings indicate that although banks have maintained strong capital and liquidity positions, the end of the pandemic-era support has revealed the true level of bad loans within the banking industry, pushing the sector’s NPL ratio well above the regulator’s acceptable limit.
Source: Central Bank of Nigeria (CBN) Q1 2026 Economic Report.
