Nigeria’s banking sector recorded a further deterioration in asset quality in January 2026, with the industry’s non-performing loans (NPL) ratio rising to 8.03%, highlighting the continuing impact of the Central Bank of Nigeria’s decision to withdraw regulatory forbearance measures introduced during earlier periods of economic stress.
According to the CBN’s January 2026 Economic Report, the NPL ratio increased by 0.52 percentage points from 7.51% recorded in December 2025, remaining significantly above the prudential benchmark of 5.0%.
The increase comes seven months after the apex bank ended key regulatory forbearance arrangements that had allowed financial institutions to restructure troubled loans without immediately classifying them as impaired assets.
### Loan reclassification drives increase in bad loans
The Central Bank attributed the rise in non-performing loans directly to the reclassification of previously restructured credit facilities following the withdrawal of the forbearance programme.
With the regulatory relief removed, banks were required to reassess and properly classify affected loans, leading to a sharper recognition of impaired assets across the industry.
According to the report, the increase reflects the banking sector’s adjustment to stricter credit-risk reporting standards and a more transparent assessment of loan quality.
The development underscores the lingering effects of economic pressures on borrowers, many of whom continue to grapple with elevated interest rates, inflationary challenges, and weaker business conditions.
### Liquidity remains strong despite asset-quality concerns
Despite the rise in bad loans, the banking industry maintained a strong liquidity position during the review period.
The sector’s liquidity ratio improved significantly to 63.38% in January 2026, up from 57.22% recorded in December 2025. The figure remains comfortably above the regulatory minimum requirement of 30%.
The improvement suggests that banks continue to hold adequate liquid assets to meet short-term obligations, support customer withdrawals, and sustain lending and financial intermediation activities.
Strong liquidity levels also provide a cushion against potential shocks arising from the worsening credit environment.
### Capital adequacy remains above regulatory threshold
The report further showed that the banking sector’s capital adequacy ratio (CAR) stood at 12.05% in January 2026, slightly lower than the 12.35% recorded in the preceding month.
Although the ratio declined marginally, it remained above the regulatory minimum requirement of 10%, indicating that banks still possess sufficient capital buffers to absorb potential losses from credit and market risks.
According to the CBN, the broader financial system remained resilient during the period, with most key financial soundness indicators staying within acceptable prudential limits.
### Rising credit risk remains a concern
The increase in non-performing loans follows earlier warnings by the Central Bank that the withdrawal of regulatory forbearance would likely expose underlying credit weaknesses that had been temporarily masked by restructuring arrangements.
The apex bank has repeatedly cautioned that rising NPL levels could weaken profitability, constrain future lending activity, and increase vulnerability within the financial system if credit discipline is not maintained.
Higher borrowing costs, inflationary pressures, and slower business recovery continue to pose risks to borrowers’ repayment capacity, raising concerns over additional loan impairments in the months ahead.
### Stricter measures for defaulting borrowers
As part of efforts to strengthen credit discipline and safeguard financial stability, the CBN has introduced tighter restrictions on borrowers with non-performing loans.
Under the directive, large-ticket borrowers whose facilities are classified as non-performing and recorded in the Credit Risk Management System (CRMS) or licensed private credit bureaus will be denied access to new credit facilities.
The measure is intended to encourage loan repayment, improve risk management practices within the banking industry, and reduce the build-up of problematic assets across the financial system.
While the rise in bad loans reflects growing pressure within the credit market, the CBN maintains that strong liquidity levels and adequate capital buffers continue to support the resilience and stability of Nigeria’s banking sector.
