Nigeria’s banking industry is bracing for another wave of balance-sheet clean-ups as several tier-one lenders move to write off massive volumes of toxic loans, raising fresh concerns among shareholders about dividend payouts and near-term profitability.
Early signals from the 2025 full-year results of leading financial institutions show a clear pattern: rising impairment charges, aggressive provisioning, and stricter asset quality reviews are eroding bottom-line earnings, even where operating income remains strong.
Analysts say the development reflects a deliberate shift by banks to confront legacy problem assets following the end of regulatory forbearance and the Central Bank of Nigeria’s (CBN) tighter supervisory scrutiny.
At the heart of the debate is the growing recognition that a significant portion of non-performing loans (NPLs) accumulated during previous economic shocks may no longer be fully recoverable. Rather than roll over such facilities or rely on extended restructuring, banks are increasingly opting to take the pain upfront through write-offs and heavy provisions.
The immediate casualty of this strategy may be shareholders’ dividends.
First HoldCo’s wake-up call
The conversation intensified after First HoldCo Plc reported a sharp rise in impairment charges in its unaudited results for the year ended December 31, 2025. Although the Group posted gross earnings of N3.4 trillion, up 4.8 per cent year-on-year, profit declined significantly as higher impairment charges in its commercial banking segment weighed heavily on earnings.
Management described the spike as a deliberate balance-sheet clean-up following the expiration of regulatory forbearance arrangements.
The market reaction was swift. The company’s share price fell by 8.4 per cent in January 2026, reflecting investor anxiety over the implications for dividend distribution and capital strength.
Despite a 36.3 per cent surge in net interest income and a 23.9 per cent increase in pre-provision operating profit to N973.3 billion, the bottom line told a different story.
A senior banking analyst at a Lagos-based investment firm, who asked not to be named, said the development signals a broader industry shift.
“Banks are no longer postponing the inevitable. What we are seeing is a coordinated clean-up across the system. The era of endlessly restructuring weak credits is fading. Many of these facilities will now be written off, and that will hit dividends,” he said.
Industry-wide pattern emerges
The trend is not limited to First HoldCo. Ecobank Transnational Corporation reported impairment charges on financial assets of $402.7 million in 2025, up from $322.4 million in 2024. Yet, the group still grew profit before tax to $840.0 million from $661.9 million and profit after tax to $623.8 million from $497.7 million, supported by stronger revenue performance.
Gross income rose to $3.16 billion, while revenue climbed to $2.41 billion, reflecting robust activity across its African operations.
Similarly, Stanbic IBTC Holdings Plc disclosed impairment charges of N14.2 billion in 2025, compared to N99.4 billion in 2024. While the year-on-year decline is notable, the absolute figures remain substantial.
Stanbic IBTC’s profit before tax rose to N551.8 billion from N303.8 billion, while profit after tax increased to N380.8 billion from N255.3 billion. Yet, market watchers caution that even with improved earnings, dividend policies may remain conservative as regulators encourage capital retention.
Why the surge in toxic loans?
Several factors have converged to create the current situation. First, the end of regulatory forbearance has removed the temporary relief that allowed banks to classify certain stressed loans as performing. With those cushions withdrawn, institutions are compelled to recognize losses that were previously deferred.
Second, currency volatility over the past two years has affected borrowers with foreign currency obligations. Although the naira’s appreciation in 2025 reduced the local currency value of some foreign loans, earlier devaluations had already impaired the repayment capacity of many obligors.
Observers noted that high interest rates and inflation have weakened corporate and retail borrowers alike, increasing default risk across multiple sectors, including manufacturing, trade, and energy.
Mazi Okechukwu Unegbu, former President of the Chartered Institute of Bankers of Nigeria (CIBN) and Chief Executive of Maxifund Investment Limited, said the impairment surge is not necessarily a sign of systemic collapse but rather of stricter accounting discipline. “Some of these loans have been technically impaired for years. What has changed is the willingness to confront reality. The real issue is that once you recognize these losses fully, your distributable profit shrinks, and dividends become difficult,” he said.
Shareholders brace for lean payouts
For shareholders, the implications are immediate and tangible. Dividend income remains a key attraction for retail and institutional investors in Nigerian banking stocks. After a strong rally in 2025, expectations were high that improved earnings would translate into generous payouts. Instead, rising impairment charges threaten to erode distributable profits and compel banks to retain earnings to shore up capital buffers.
Igbrude Moses, National Co-ordinator of the Independent Shareholders Association of Nigeria (ISAN),expressed concern over the trend. “We understand the need for transparency and compliance, but shareholders also need clarity. If massive write-offs are coming, management must explain how much is truly unrecoverable and what recovery strategies are in place,” he said.
In some cases, banks may opt to pay token dividends or skip payouts entirely to preserve capital adequacy ratios, especially if impairment charges significantly reduce retained earnings.
Capital strength versus investor returns
Regulators are expected to support conservative dividend policies where necessary. The CBN has consistently emphasized the importance of strong capital buffers to safeguard financial system stability.
Industry analysts argue that while dividend cuts are unpopular, they may ultimately strengthen banks’ long-term resilience. By aggressively writing off toxic assets, banks can rebuild cleaner loan books, improve asset quality metrics and restore investor confidence over time. A stronger balance sheet could also position institutions to pursue growth opportunities across digital banking, retail expansion and cross-border operations.
However, the transition period may prove uncomfortable. Market sentiment remains cautious, with investors weighing short-term pain against long-term sustainability.
What happens next?
Much will depend on the scale of additional impairments disclosed in forthcoming audited reports and the tone adopted by bank management during investor calls. If the majority of legacy toxic exposures are recognized and provided for in 2025 and early 2026, the industry could emerge with significantly cleaner balance sheets, paving the way for more stable earnings growth from 2026 onward.
On the other hand, if fresh waves of non-performing loans continue to surface, confidence could weaken further, putting sustained pressure on valuations and dividends.
For now, the message from the numbers is clear: Nigeria’s banks are entering a phase of financial reckoning. As one market strategist put it, “The sector is choosing credibility over comfort. Writing off bad loans hurts in the short term, but pretending they don’t exist hurts even more in the long run.”
For shareholders hoping for bumper dividends, that reckoning may come at a cost. The clean-up of toxic loans, though necessary for long-term stability, is likely to translate into leaner payouts,at least for the foreseeable future.