However, the ratings agency observed that the expiry of forbearance will lead to some large Stage 2 loans being reclassified as impaired, the agency said in a new peer credit analysis on the country’s major banks.
Reports states that an impaired loan is a loan that is not performing according to the original terms of the agreement.
This is just as another rating agency, Agusto & Co. Limited, observed that as of 31 December 2024, 5.2 per cent of the industry loan book was adjudged as non-performing, higher than 4% recorded in the previous year. This is hinged on “the deterioration of some credit facilities and the bloating impact of the 40.4 per cent-naira depreciation during the year.”
Fitch in its report titled, “Nigerian Banks Ready to Exit Longstanding Forbearance” stated that the banks’ preparedness “is supported by the restructuring of many Stage 2 loans, capital raisings across the banking sector spurred by a large increase in paid-in capital requirements, and increased loss-absorption capacity resulting from improved net interest margins.
“This will help counteract increased loan impairment charges and prudential provisions resulting from the expiry of forbearance and the associated pressure on total capital adequacy ratios across the banking sector.”
What’s forbearance?
Regulatory forbearance is a policy tool used by central banks that permits banks and financial institutions to maintain operations despite falling below required capital thresholds. It is a provisional measure that allows the restructuring of assets such as non-performing loans.
Daily Trust reports that the apex bank in a June 13 circular froze dividends and other capital outflows for banks still operating under regulatory leniency frameworks introduced in the aftermath of COVID-19 and the attendant economic downturn.
However, Fitch noted that certain banks will be allowed to continue operating under forbearance, subject to certain penalties, including the inability to pay dividends.
The report added, “The naira devaluation has been positive for the banking sector’s foreign-currency liquidity as it has led to higher FX market turnover. Eurobonds totalling USD2.2 billion mature or are callable by end-2026.
“The banks generally have sufficient liquidity to meet their Eurobond obligations without needing to refinance.”
5.2 per cent of banks’ loans underperforming – Agusto
In a related development, Agusto & Co. Limited, in its 2025 Nigerian Banking Industry Report noted as at 31 December 2024, 5.2 per cent of the industry loan book was adjudged as non-performing, higher than 4% recorded in the prior year, based on the deterioration of some credit facilities and the bloating impact of the 40.4 per cent-naira depreciation during the year.
“We note that some non-performing loans benefitting from regulatory forbearance were included in the stage 2 category as of 31 December 2024. In June 2025, the CBN terminated the regulatory forbearance.
“Thus, all loans are expected to be classified appropriately with the required provisions taken. All credit exposures are also expected to comply with the prescribed single obligor limit (SOL). In our view, the ongoing capital raising activities will resolve most of the SOL breaches on some exposures hitherto under forbearance,” the report added.
“We also anticipate a surge in write-offs as some banks leverage the transition relief (waiver on the twelve months mandatory waiting period for duly provisioned impaired loans before write-offs) to address non-performing forbearance loans. Notwithstanding, we believe the industry’s impaired loan ratio will surge to 6.9% as some non-performing forbearance loans are classified appropriately,” it said.
The report further predicted a reduction in the impaired loan ratio before 31 December 2026 as the non-performing loans are resolved.
“In the financial year ended 31 December 2024, the high-yield environment sustained the industry’s performance. The steep naira depreciation also supported profitability, albeit lower than the prior year, largely due to the zero net open position directive of the CBN. In FY 2025, we anticipate a decline in profitability indicators,” the report said.
Fresh N900bn injection
The report also predicted that a fresh N900bn would be injected into the financial system as banks complete the recapitalisation programme ahead of March 2026 deadline.
It further revealed that additional N900 billion capital injection is expected in the Nigerian banking industry.
The report noted that the introduction of the minimum paid-up capital in March 2024 drove recapitalisation activities in the Industry.
Although the minimum paid-up capital directive will not be effective until 31 March 2026, about N1.7 trillion was raised by 16 banks in 2024.
“Similarly, circa N800 billion was raised in the first seven months of 2025. Thus, eight banks have complied with the minimum paid-up capital directive as at 31 July 2025, ahead of the 31 March 2026 deadline.“
However, the mandatory verifications by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) are pending on some of the capital raised. We note positively that domestic investors provided most of the capital raised by the banks in the last 19 months, reflecting the acceptability of the Industry by Nigerians,” it said.
