CBN’s Forbearance Phase Out: What Investors Need to Know
In the wake of the COVID-19 pandemic, the Central Bank of Nigeria (CBN) introduced regulatory forbearance to support the banking sector—much like other central banks globally.
These measures included loan restructuring, interest rate reductions, and repayment moratoriums, helping banks keep loan defaults or non-performing loans under control during a tough economic period.
Fast forward to 2025, the CBN has announced it will begin gradually phasing out these forbearance measures. This marks a significant shift for banks and investors alike, according to analysts.
Since 2020, Nigerian banks have been allowed to keep restructured or distressed loans from being classified as NPLs. This helped maintain stability, especially in sectors like oil & gas, which were hardest hit.
Now, as economic conditions stabilise, the CBN plans to unwind these temporary measures—sector by sector. The power sector is expected to exit first, followed by agriculture, with oil & gas likely to be last due to its high concentration of forbearance loans.
This move is being done gradually to avoid shocks to the system, but it will require banks to reassess how they treat these loans, potentially increasing provisions and affecting capital ratios.
Seven major Nigerian banks—ACCESS, FBNH, FCMB, FIDELITY, GTCO, UBA, and ZENITH—carry a combined $4 billion+ in forbearance loans. Individually, exposures range from $60 million to $910 million.
If banks are required to set aside just 10% of these loans as provisions, the impact on capital will be modest, with estimated declines in capital adequacy ratios (CARs) ranging from 17 bps to 394 bps.
Some banks, like GTCO and ZENITH, have already started provisioning early, limiting future impact. In the worst-case scenario, most of the selected banks except ACCESS and GTCO could see their NPL ratios rise above the regulatory threshold of 5%.
However, banks appear resilient enough to absorb such shocks, given their current risk buffers and improving borrower performance in key sectors.
Forbearance loans still generate interest income, even if cash collection is delayed, potentially overstating earnings and straining liquidity.
Under IFRS 9, these loans also require lifetime credit loss provisions, which reduce net asset value. After adjusting for these risks—including a 10% haircut on book value—most banks still appear undervalued, but investors would likely focus on provisioning adequacy, cash recovery expectations, and liquidity risks for a clearer picture.
The CBN’s gradual removal of regulatory forbearance is a necessary step toward policy normalisation. While it introduces short-term headwinds—especially for banks with large oil & gas exposures—the process is measured and allows time for adjustment.
Proactive provisioning, sector improvements, and capital buffers should help banks weather the transition. For investors, now is the time to look beyond headline valuations and focus on loan quality, capital strength, and how well banks are preparing for this policy shift.
Those with stronger balance sheets and prudent provisioning strategies are likely to emerge stronger—and more attractive in the long term. #CBN’s Forbearance Phase Out: What Investors Need to Know#
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