By Elizabeth Adegbesan

The withdrawal of the Central Bank of Nigeria’s (CBN) COVID-19 regulatory forbearance given to banks has pushed banks’ Non-Performing Loans (NPLs) ratio to 9.94 per cent in the first quarter of 2026 (Q1’26), significantly above the apex bank’s prudential benchmark of 5.0 per cent.

The development was disclosed in the CBN’s first quarter 2026 (Q1’26) Economic Report, which attributed the increase to the end of the long-standing pandemic-era relief measures introduced to support borrowers and strengthen financial system stability during the COVID-19 crisis.

According to the report, the NPL ratio rose by 2.43 percentage points from 7.51 per cent in the fourth quarter of 2025.

The CBN stated: “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.” Despite the rise in bad loans, the apex bank maintained that the Nigerian banking industry remained resilient, with key financial soundness indicators largely above regulatory requirements.

The banking sector’s Liquidity Ratio (LR) increased to 67.32 per cent in Q1’26 from 57.22 per cent in the previous quarter, remaining well above the statutory minimum of 30 per cent.

Similarly, the Capital Adequacy Ratio (CAR) improved by 0.84 percentage point to 13.19 per cent, exceeding the regulatory minimum of 10 per cent.

According to the CBN, the stronger liquidity position reflects banks’ capacity to meet short-term obligations while continuing to extend credit to the economy, and the improved capital position underscores the industry’s ability to absorb potential credit and market shocks.

The report stated: “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.”

Meanwhile, credit extended by Other Depository Corporations (ODCs) to the economy rose by 5.95 per cent to N60.73 trillion in Q1’26 from N57.32 trillion in Q4’25, indicating continued support for productive sectors despite the tight monetary environment.

The services sector accounted for the largest share of total credit at 59.54 per cent, followed by industry with 34.10 per cent, while agriculture accounted for 6.36 per cent. However, consumer lending weakened during the period.

The report suggests that while the banking sector remains adequately capitalised and liquid, the withdrawal of COVID-19 forbearance has exposed previously restructured or distressed loans, leading to a marked deterioration in asset quality even as banks continue to expand lending to critical sectors of the economy.