Banks’ Non-Performing Loans Will Drop To 5% By Year-End – Fitch Ratings

…Says recapitalisation eased forbearance exit

The new capital raised by banks in Nigeria, according to the directive of the Central Bank of Nigeria (CBN), helped operators in the banking industry to offset the pressure of increased impaired loans that came with the end of the regulatory forbearance, Fitch Ratings has said in a new report, as it projects non-performing loans to drop to five per cent by the end of the year

Fitch in its report had noted although non-performing loans ratio of the banking industry had risen to eight percent at the end of the first month of 2026 from around 4.5 percent at the end of the 2024 financial year, the impaired loans ratio is expected to decline to the regulatory limit of five percent by the end of this year.

The NPL ratio further rose to 9.85 per cent in February 2026, following regulatory forbearance and the reclassification of loans, according to the CBN’s February 2026 Economic Report. The report noted that asset quality had “weakened following the withdrawal of regulator forbearance, as loan reclassification drove the non-performing loans (NPLs) ratio higher by 1.82 percentage points to 9.85 per cent, exceeding the 5.00 per cent prudential threshold.”

Fitch, in its report released on Tuesday, noted that impaired loan ratios increased sharply, putting pressure on capitalisation following the withdrawal of longstanding forbearance. “However, this pressure was offset by good internal capital generation and capital raisings to meet new paid-in capital requirements that became effective at end of first quarter of 2026.

It noted that the withdrawal of regulatory forbearance led to some problem loans, particularly oil and gas loans, being reclassified as impaired. According to Fitch, the banking sector’s impaired loans ratio increased to eight percent cent at end of January 2026 from 4.5 per cent at the end of 2024. Fitch however expects it to decline to about five per cent at end of 2026 on higher oil production and prices, and write-offs.

“Capital raisings to meet the new requirements have enabled many banks to absorb additional provisions, particularly prudential provisions that completely disregard collateral, resulting from higher impaired loans, and capital deductions resulting from single-obligor limit breaches, while generally remaining compliant with their respective minimum total capital adequacy ratio requirements.

“Profitability generally declined in 2025 due to increased loan impairment charges and the lack of foreign-exchange revaluation gains that occurred because of the devaluation of the Nigerian naira in 2023-2024. Fitch expects profitability to improve slightly in 2026, driven by declining loan impairment charges and net interest margins remaining broadly stable, as the Central Bank of Nigeria pauses its monetary easing in response to renewed inflationary pressures. Fitch forecasts loan growth to accelerate to about 20% in 2026 (2025: 2%) as banks begin deploying the fresh capital they have raised.

“The naira devaluation has benefitted sector foreign-currency liquidity as it has led to higher foreign-exchange market turnover. This improvement has been timely, given that several banks have maturing Eurobonds. Foreign-currency liquidity stands to further benefit from higher oil prices.” The report read.

Despite the rise in bad loans, the apex bank maintained that the financial system remained resilient, supported by strong liquidity and adequate capitalisation. “The Nigerian banking sector sustained strong systemic resilience, with most financial soundness indicators remaining within regulatory benchmarks,” the CBN Economic report noted.

The industry liquidity ratio rose to 69.27 per cent in February from 63.38 per cent in January, remaining well above the prudential minimum of 30 per cent. The CBN said the development underscores banks’ strong capacity to meet short-term obligations and support financial intermediation.

Similarly, the capital adequacy ratio (CAR) improved to 12.55 per cent from 12.05 per cent in the preceding month, remaining above the regulatory minimum requirement of 10 per cent. According to the report, the improvement reflects the sector’s “robust solvency and resilience against credit and market risks.”