By Josiah Nkemakolam
Nigeria’s banking sector is facing renewed pressure as rising borrowing costs, economic uncertainty, and the withdrawal of regulatory support measures push bad loans to their highest levels in years, raising concerns about credit quality, business survival, and overall economic growth.
Data from the banking industry shows that the aggregate Non-Performing Loan (NPL) ratio rose to 8.03 per cent at the end of the first quarter of 2026, up from 7.51 per cent recorded in December 2025 and significantly above the Central Bank of Nigeria’s (CBN) prudential benchmark of 5 per cent.
The deterioration comes at a time when businesses across sectors are struggling with borrowing costs linked to the CBN’s benchmark Monetary Policy Rate (MPR), which remains elevated at 27.5 per cent, translating into commercial lending rates that frequently exceed 30 per cent for many corporate and SME borrowers.
Industry analysts say the combination of high interest rates, weak consumer demand, foreign exchange pressures, elevated energy costs, and the withdrawal of regulatory forbearance has created a perfect storm for businesses already operating under severe financial strain.
Forbearance Exit Exposes Hidden Stress
A major trigger behind the sharp rise in NPLs was the expiration of pandemic-era regulatory forbearance granted by the CBN.
The relief programme had allowed banks to restructure distressed loans without immediately classifying them as impaired. With the programme now withdrawn, many previously restructured facilities have reverted to non-performing status, exposing the true extent of credit stress across the economy.
As repayment obligations resumed, lenders were forced to reclassify several loans as bad debts, resulting in higher impairment charges and a spike in industry-wide NPL figures.
The apex bank has also moved to tighten discipline within the credit market by restricting borrowers with non-performing facilities recorded in the Credit Risk Management System from accessing fresh banking facilities or guarantees.
The policy is aimed at curbing serial defaults and encouraging greater credit responsibility among large obligors.
Businesses Under Pressure
Manufacturers, traders, importers, and SMEs appear to be bearing the brunt of the current credit environment.
Many operators say borrowing at rates exceeding 30 per cent has become unsustainable, especially amid declining purchasing power and weak consumer demand.
Several manufacturers have reported increasing difficulties servicing existing loans while maintaining production levels.
The situation has become particularly acute in sectors with heavy exposure to foreign exchange liabilities and energy costs, including manufacturing, oil and gas, logistics, and import-dependent industries.
Economic analysts warn that unless borrowing costs moderate significantly, more businesses could fall into financial distress, further worsening the asset quality of banks.
Banks Show Diverging Asset Quality Trends
While the industry average NPL ratio has climbed above regulatory limits, the experience across individual banks remains mixed.
First HoldCo recorded one of the highest NPL ratios among major lenders, rising to 13.4 per cent in the first quarter of 2026 from 12.0 per cent at the end of 2025. The increase was largely attributed to oil and gas sector exposures and the withdrawal of regulatory forbearance.
The group nevertheless recovered approximately N19 billion from delinquent assets during the quarter as part of an aggressive remediation programme.
Similarly, FCMB Group reported an NPL ratio of 13.4 per cent, reflecting asset quality pressures linked to stressed obligors within the oil and gas sector.
Ecobank Group also experienced a notable deterioration, with its NPL ratio rising to 9.5 per cent, driven substantially by developments within its Nigerian operations.
In contrast, several lenders managed to maintain stronger asset quality metrics.
GTCO improved its NPL ratio to 4.4 per cent from 5.0 per cent in December 2025, remaining comfortably below the CBN threshold. The bank also reduced impairment charges by 41 per cent year-on-year.
Zenith Bank maintained a healthy NPL ratio of 3.79 per cent, while Fidelity Bank improved its Stage 3 loan ratio to 2.4 per cent.
Stanbic IBTC Holdings reported an NPL ratio of approximately 3.4 per cent, while Access Holdings maintained one of the lowest NPL ratios among Tier-1 lenders at about 2.76 per cent despite a sharp increase in impairment provisioning.
Wema Bank and Sterling Financial Holdings remained close to the regulatory threshold, reporting NPL ratios of 4.90 per cent and 4.93 per cent respectively.
Providus Bank improved its NPL ratio to 5.7 per cent from 7.4 per cent, though it still remained slightly above the CBN benchmark.
Rising Impairment Charges
The worsening credit environment has compelled banks to make larger provisions for potential loan losses.
Access Holdings reported a 113 per cent increase in impairment charges to N73.8 billion in the first quarter.
UBA set aside N38.2 billion in credit loss provisions while maintaining a robust NPL coverage ratio of 123.57 per cent.
Across the industry, analysts expect lenders to continue pursuing aggressive loan recovery efforts, write-offs, and restructuring initiatives throughout 2026 to strengthen balance sheets and preserve capital.
Despite the rising NPLs, most Nigerian banks continue to maintain strong liquidity and capital adequacy positions, providing some reassurance regarding systemic stability.
Rewane Warns of Economic Consequences
Managing Director of Financial Derivatives Company, Bismarck Rewane, warned that persistently high interest rates are creating severe challenges for businesses and borrowers.
According to him, “When the cost of borrowing remains above the rate at which businesses can generate returns, defaults become inevitable. Many companies are spending more on financing costs than on expansion and productivity.”
Rewane noted that while the CBN’s tightening measures have helped stabilize inflationary pressures and support the naira, the unintended consequence has been rising stress within the productive sector.
“The challenge now is achieving a balance between monetary stability and economic growth. If credit becomes too expensive, investment slows and loan quality deteriorates,” he said.
Peter Obi Raises Alarm
Former Anambra State Governor and Labour Party presidential candidate, Peter Obi, has repeatedly expressed concern over the impact of elevated interest rates on Nigeria’s real sector.
Obi argued that the country’s economic structure cannot sustain prolonged periods of exceptionally high borrowing costs.
“No economy can achieve meaningful industrial growth when businesses are borrowing at rates above 25 or 30 per cent,” he said recently.
According to him, productive enterprises require affordable financing to expand capacity, create jobs, and increase exports.
“When manufacturers spend more servicing debt than investing in production, economic growth becomes difficult. The result is slower expansion, job losses, and rising loan defaults,” Obi added.
Economists See Further Risks Ahead
Chief Executive Officer of Cowry Asset Management, Johnson Chukwu, believes the rise in NPLs was expected following the end of regulatory forbearance.
“What we are seeing is essentially a normalization process. Many of these facilities had underlying weaknesses that were temporarily masked by restructuring arrangements. Once the support ended, the true quality of the assets became evident,” he said.
Chukwu, however, expects the banking industry to absorb much of the shock because most major lenders have already increased provisions and strengthened capital buffers.
For his part, renowned economist and policy analyst Dr. Muda Yusuf noted that SMEs remain particularly vulnerable.
“Small and medium-scale enterprises are facing a combination of weak demand, rising operating costs, exchange rate pressures and expensive credit. It is therefore unsurprising that loan repayment challenges are increasing,” Yusuf said.
He urged policymakers to prioritize targeted intervention funds and lower-cost financing windows for productive sectors.
Lessons from Developed Economies
The contrast between Nigeria and many developed economies remains striking.
Although inflation concerns have prompted tighter monetary policy globally in recent years, borrowing costs in advanced economies remain significantly lower than those faced by Nigerian businesses.
In the United States, commercial lending rates for creditworthy corporate borrowers typically range between 5 and 8 per cent.
Across much of Europe, business lending rates remain largely in single digits, while manufacturers in countries such as Germany, France, and the Netherlands often access financing at rates below 6 per cent.
In Japan, where ultra-low interest rates have persisted for decades, many companies continue to borrow at rates below 2 per cent.
These relatively affordable financing conditions allow businesses to invest in technology, production capacity, innovation, and employment without facing the crushing debt-servicing burdens common in many emerging markets.
Economic experts argue that Nigeria’s private sector competitiveness remains constrained by the high cost of capital.
Outlook for 2026
Looking ahead, analysts expect the Nigerian banking sector to remain resilient despite the spike in bad loans.
The ongoing recapitalisation exercise mandated by the CBN is expected to strengthen capital buffers and improve the industry’s capacity to absorb shocks.
However, the trajectory of NPLs will largely depend on broader macroeconomic conditions, including inflation, exchange rate stability, energy costs, and the direction of monetary policy.
Should interest rates remain elevated for an extended period, credit quality pressures could persist, particularly among highly leveraged corporates and SMEs.
For now, both lenders and borrowers are navigating a difficult transition period.
Banks are tightening credit standards, intensifying recovery efforts, and increasing provisioning levels. Businesses, meanwhile, are searching for ways to survive in an environment where borrowing costs have reached historic highs.
The rise of the industry’s NPL ratio to 8.03 per cent serves as a stark reminder that while monetary tightening may help restore macroeconomic stability, the cost is increasingly being felt on factory floors, in small businesses, and across boardrooms nationwide.
For many Nigerian firms, the challenge is no longer merely accessing credit—it is finding credit they can afford to repay.