Forbearance Shutdown Tests Nigerian Banks’ Asset Quality
Nigerian banks are expected to face asset quality challenges in 2026 following the total forbearance shutdown by the Apex Bank in 2025, S&P acknowledged in a new report.
High-risk-taking banks with significant oil and gas exposure experienced a sharp increase in impairment charges on credit losses.
The end of regulatory forbearance will challenge asset quality, while increased capital requirements come due and net interest margins come under pressure because of expected interest rate cuts.
Despite this, the ratings agency analysts anticipate Nigerian banks will prove resilient and capable of preserving their profitability.
Analysts attribute this to growth in non-interest income, driven by transaction fees and commission growth, and declining but still high cost of risk.
“The latter will remain elevated as the Central Bank of Nigeria (CBN) removed regulatory forbearance measures, and the creditworthiness of some restructured exposures remains weak.
“These could weigh on banks’ asset quality in 2026 and beyond, particularly if the oil price drops significantly below our expectations”, S&P said.
The global ratings agency forecasted that nonperforming loans (NPLs) will remain elevated in 2026, at about 6%-7%, following the removal of regulatory forbearance on several loans in the oil and gas sector in June 2025.
Asset quality metrics will remain stable, but risks are tilted to the downside, the firm said in its commentary note. The Nigerian banking sector NPLs increased significantly in 2025 to about 7.0% compared with 4.9% in 2024 because of the end of forbearance on oil and gas exposures.
The forbearance introduced in 2020 allowed banks to maintain some exposures to this sector in Stage 2, thus limiting provisioning needs. Some banks have proactively written off exposures under forbearance measures, while others are still in the process of restructuring and writing off these exposures.
The credit quality of these exposures remains weak, and they continue to be vulnerable to a drop in oil prices. S&P expects the oil price to average $60 in 2026 and $65 after that, which should be sufficient to keep these exposures afloat and borrowers solvent.
“… we expect the NPL ratio to stabilize at 6%-7% in 2026 and stage 2 loans to remain stable at about 20%-22% compared with 18%-20% as of Sept. 30, 2025.
“Banks’ loan books are heavily concentrated by single name, sector, and currency. Approximately 50% of loans are denominated in foreign currency and roughly one-third are exposed to the oil and gas sector in 2026.
“This concentration exposes them to both economic shocks and the evolving energy transition risks. Although banks have been reducing upstream exposure, potential reforms driven by the Petroleum Investment Act could shift focus to the downstream sector”.
S&P stated that a significant portion of banks’ lending–an average of 50% of gross loans–is concentrated within the top 20 loans, with considerable overlap in borrowers among the largest banks. This high level of single-name and industry concentration further elevates credit risk for certain institutions.
