Banks Prepare for End of Pandemic-Era Support
Nigeria’s banking sector is entering a new phase of policy normalization, as the Central Bank of Nigeria (CBN) has announced plans to gradually phase out regulatory forbearance measures introduced during the COVID-19 pandemic. According to a recent report by Renaissance Capital Africa, the total value of forbearance loans across FBN Holdings and six other major banks stands at $4.01 billion.
The forbearance framework, which was approved by the CBN in May 2020, was aimed at shielding banks and borrowers from the economic fallout of the pandemic. It provided measures such as a one-year moratorium on principal repayments, interest rate reductions, and loan restructuring for affected sectors. These actions helped maintain asset quality and ensure sector stability during an economically turbulent period.
FBN Holdings Carries Over $500 Million in Forbearance Loans
The report estimates that FBN Holdings alone accounts for $535 million of the forbearance portfolio. It further highlights that much of this exposure stems from the oil and gas sector, which was severely impacted during the pandemic and remains the largest beneficiary of the forbearance policy. Notably, one of FBN's largest exposures—Aiteo Group—has reportedly met its interest obligations for two consecutive quarters, suggesting improving financial health.
Despite the relative calm in Non-Performing Loan (NPL) ratios—with the sector average remaining at 4.3%, below the CBN's 5% benchmark—the withdrawal of forbearance is expected to introduce new stress points.
Phased Approach to Prevent Shockwaves
Rather than implementing an abrupt end to the forbearance regime, the CBN has opted for a gradual and sector-specific phase-out, a strategy supported by Renaissance Capital. The phased approach is expected to minimize disruptions in capital adequacy and liquidity metrics across the industry, especially for banks heavily exposed to affected sectors.
The report suggests that the power sector, which has recently benefitted from tariff adjustments, may be the first to exit the regime. The agriculture sector may follow, while the oil and gas sector is expected to be the last due to its high concentration of restructured loans.
Impact on Capital and Profitability
Should banks be required to take a 10% provision on their forbearance exposures, this would be applied through equity into a non-distributable, non-capital-qualifying Regulatory Risk Reserve (RRR). This accounting treatment is intended to protect profitability ratios, though it would exert downward pressure on Capital Adequacy Ratios (CARs).
Based on Renaissance Capital’s estimates, CAR declines would vary among institutions:
- Access Bank: -60 basis points
- FBN Holdings: -149bps
- FCMB: -198bps
- Fidelity Bank: -394bps
- GTCO: -17bps
- UBA: -124bps
- Zenith Bank: -128bps
Some banks, however, have taken early action. GTCO has already provisioned for 80% of its forbearance loans, while Zenith Bank has covered 20%. These proactive strategies are expected to soften the impact of the policy shift.
Best- and Worst-Case Scenarios for Banks
In the best-case scenario, regulatory forbearance would be maintained, sparing banks from reclassifying these loans as NPLs or taking provisions. However, Renaissance Capital considers this outcome unlikely given the CBN’s clear stance.
The worst-case scenario would involve reclassifying all forbearance loans as non-performing, with banks required to make 10% provisions through their profit and loss (P&L) accounts. Though these loans are often collateralised—especially in oil and gas—actual foreclosure is rare due to complex regulatory hurdles and potential damage to business relationships.
Under this scenario, most of the selected banks, except Access Bank and GTCO, would exceed the 5% NPL threshold, compelling them to take additional losses. Still, Renaissance Capital maintains that these institutions appear generally well-positioned to absorb such shocks, with FY’24 Cost-of-Risk (CoR) projections remaining below breakeven levels.
Policy Shift Signals a Return to Normalcy
The decision to end regulatory forbearance marks a shift toward post-pandemic economic normalization. While the policy helped insulate banks from the worst effects of COVID-19, its extended application has outlived its original purpose, according to the report.
As Nigeria’s financial institutions adapt to this evolving regulatory landscape, the sector’s resilience will be tested. Nonetheless, a combination of phased implementation, proactive provisioning, and improving borrower performance is expected to cushion immediate impacts and support continued stability.