Banks’ Bad Loans: Shareholders, Analysts Want Phased Provisioning, Aggressive Recovery

Pressure is mounting on bank executives as shareholders and analysts intensify calls for aggressive loan recovery strategies following a surge in loan loss provisions that has begun to erode dividend payouts across Nigeria’s banking sector.

Findings show that seven banks that have so far released their audited financials for 2025 recorded N2.41 trillion in loan losses in 2025, a nearly 30 per cent jump in impairment charges from N1.87 trillion in 2024, as the apex bank moved to end regulatory forbearance and compel full provisioning for troubled loans, triggering dividend cuts and raising fresh concerns among investors.

Zenith Bank, Guaranty Trust Holding Company, Access Holdings, Stanbic IBTC, Ecobank Transnational Incorporated (ETI), United Bank for Africa (UBA) and Wema Bank recorded an impairment charge of N2.41 trillion, a 29.8 per cent surge from the N1.857 billion recorded in 2024.

Zenith Bank, which recorded a slight decline in profit from N1.32 trillion in 2024 to N1.26 trillion in 2025, however, paid a total of N10 in dividends, having paid N1.25 in an interim dividend and N8.75 in a final dividend.

This is despite its provisioning of N742.18 billion in loan loss last year, compared to N657.003 billion it set aside as impairment 2024 loan loss.

GTCO, which paid the highest dividend so far, totalling N12.76 billion for the 2025 financial year, had moved from a N136.66 billion impairment on loan loss in 2024 to N66.423 billion provision for loan loss, the least so far for its peers in 2025.

Access Bank said it grew its profit to cross the N1 trillion mark amid an expansion drive, but was heavily impacted by an impairment charge, which almost doubled from N245.31 billion in 2024 to N523.55 billion.

For UBA, the bank’s profit was cut back with an impairment charge of N331.07 billion in 2025, while Ecobank Transnational, the parent body for Ecobank Nigeria, made provision for loan loss to the tune of N707.52 billion in 2025 as against the N480.56 billion which it made in 2024.

The spike in impairment charges, triggered by stricter directives from the Central Bank of Nigeria, has not only eroded earnings quality but also exposed what stakeholders describe as deep-rooted weaknesses in credit risk governance across the industry.

While banks moved to comply with the apex bank’s order to exit the forbearance window and fully recognise non-performing loans, shareholders argue that the development raises more fundamental questions about how such exposures were allowed to accumulate in the first place.

National Coordinator of the Independent Shareholders Association of Nigeria, Moses Igbrude, said the situation goes beyond regulatory compliance and points to lapses in internal controls.

“Why are banks operating in such a way that they have to make huge provisions that prevent them from paying dividends? What strategies are they putting in place to ensure this does not happen again?” he queried.

Igbrude also raised concerns over weak loan recovery and lack of accountability for delinquent borrowers, warning that the system risks perpetuating bad behaviour. “Who are these people who collected these loans and are not paying back? Why are they not being held accountable? There should be consequences, including blacklisting them from the financial system,” he said.

The concerns come as several banks reported sharp increases in impairment charges, with industry provisions rising by about 40 per cent year-on-year to N3.2 trillion in 2025, even as profit before tax slipped to N6.35 trillion from N6.57 trillion.

Chairman of the Progressive Shareholders Association of Nigeria, Boniface Okezie, said the regulatory stance has effectively shifted the burden of bad loans onto shareholders. “The outright restriction on dividend payments is not favourable to investors. These funds belong to shareholders, and denying returns despite profits raises concerns,” he said.

Okezie also faulted the Central Bank of Nigeria’s policy approach, suggesting that a phased provisioning framework would have reduced the shock to investor returns. “Many of these loans are not completely lost. With proper recovery, they can still be converted into profit. A phased approach would have allowed banks to still reward shareholders,” he added.

However, analysts insist that the regulatory intervention, though painful, was necessary to restore transparency in the banking system. Head, Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, said the end of regulatory forbearance merely forced banks to confront risks that had been building over time.

“The closure of the forbearance window required banks to reclassify loans and make adequate provisions. Some of these exposures were not fully provided for previously,” he said.

He described the development as a “clean-up exercise,” noting that improved loan recoveries could reverse some of the impairments in the near term. “It is a bittersweet situation. As recoveries improve, those provisions can be written back into profit. That could reduce impairment levels significantly in 2026,” Olubunmi added.

But beyond the numbers, stakeholders say the real issue is governance. Shareholders are now demanding tougher sanctions against insiders linked to non-performing loans, warning that related-party lending and weak enforcement have continued to undermine confidence in the system.

“There should be no room for related-party abuse. Anyone who takes a loan and cannot repay should not have access to further credit anywhere in the system,” Igbrude said.

According to Okezie, “with aggressive recovery efforts, such loans can still be recouped and eventually converted into profit. Achieving this will require significant effort, resilience, and a strong recovery strategy. Banks must aggressively pursue loan recoveries. Where directors are involved in such non-performing loans, they should step down from the board and settle their obligations.

“From our perspective, these loans are not entirely bad assets yet; they can still be recovered, and shareholders will benefit in due course. It is largely a matter of time and effective recovery. Economic conditions have made repayment more difficult, so banks must intensify their recovery efforts.”

UBA’s Group Managing Director and Chief Executive, Oliver Alawuba, had assured investors that the bank’s fundamentals remain strong and that recoveries from delinquent loans are already underway.

Explaining the absence of a final dividend for the 2025 financial year, Alawuba said the development was tied to directives from the Central Bank of Nigeria mandating banks to exit the forbearance loan window.

“You will recall that UBA has had a long history of dividend payments, with dividend yields consistently in double digits,” he said, noting that the bank paid about 11 per cent dividend yield in 2023 and 10 per cent in 2024, while also issuing an interim dividend in the first half of 2025.

However, he added that “the expectation from shareholders was that UBA would pay a final dividend. That did not happen.”

According to him, compliance with the regulatory directive required the bank to reclassify some loan exposures and make provisions of nearly N331 billion, which pushed its non-performing loan ratio above the threshold for dividend declaration.

“This was because the Central Bank of Nigeria had given banks the mandate to exit the forbearance loan window; we had to reclassify some accounts in line with prudential guidelines and make provisions,” he said.

Despite the setback, the UBA Group MD described the development as temporary. “The good news is that this is a one-off event and not recurring. The portfolio has now been reset. We are also pursuing defaulting customers, and there are signs they are paying back. Once they do, the NPL ratio will moderate, and we will be in a position to pay dividends this year.”