Businesses buckle under debt as defaults push bad loans to N21.2trn

High interest rates, FX shocks, end of COVID forbearance trigger spike in corporate loan failures

By Babajide Komolafe, Economy Editor

At the backdrop of economic pressures on households and businesses, banks are now struggling with a rising loan defaults by businesses,  leading to a significant increase in bad loans portfolio of banks to N21.2 trillion.

Financial Vanguard’s tracking of data on loans to customers by the top 11 banks as disclosed in their unaudited financial statements for the nine months ended Q3’25, showed that nine of the banks recorded an increase in bad loans (Non Performing Loans, NPL).

Amongst the 11 banks three of the Tier-1 banks recording increases in their NPLs while all the six Tier-2 banks recorded growth in NPLs.

Collectively, the NPLs of the 11 banks rose by five per cent to N21.2 trillion at the end of Q3’25 from N20.2 trillion at the end of Q4’24.  

A further breakdown of their loan portfolio showed that the Tier-1 banks took the largest share of the bad loans collectively recording a bad loan size of N17.63 trillion at the end of Q3’25 from N16.943 trillion at the end of Q4’24.

The Tier-2 banks collectively recorded a 10 per cent increase in NPLs to N3.54 trillion at end of  Q3’25 from N3.21 trillion at end of Q4’24.

Confirming this trend, the Central Bank of Nigeria, CBN, in its Financial Stability Report for June 30th, 2025, said: “The non-performing loans (NPLs) ratio increased to 5.76 per cent, above the regulatory benchmark of 5.00 per cent and 4.87 per cent recorded at end-December 2024.

“In addition, the ratio of NPLs net of provisions to capital increased to 13.90 per cent from 4.91 per cent at end-December 2024. The ongoing recapitalisation exercise of banks and sustained GSI implementation were expected to bolster loss-absorption buffers and preserve banking system stability.”

COVID-19 forbearance

Financial Vanguard investigations revealed that the upward trend in NPLs is being driven by two major factors.

First is the decision of the CBN to withdraw  regulatory forbearance on loans to households and businesses affected by the COVID 19 pandemic.  

The forbearance  measures  included a one-year extension of moratoriums on loan repayments. Banks were also allowed to consider time-limited restructuring of loan terms for sectors severely affected by the pandemic, including oil and gas and agriculture. Furthermore, the CBN reduced  interest rates on its intervention facilities to five  percent, though this was subsequently returned to nine  percent in July 2022.

In 2023, the CBN extended forbearance on certain prudential limits, including violations of the single obligor threshold and the net open position.

However, last year, the apex bank in a circular, announced measures to support banks to exit the forbearance regime. These include suspension of dividend payments, bonuses to directors and senior management and investments in foreign subsidiaries until capital levels and provisioning for NPLs  are fully restored to the regulatory threshold.

“This temporary suspension is until such a time as the regulatory forbearance is fully exited and the banks’ capital adequacy and provisioning levels are independently verified to be fully compliant with prevailing standards. This supervisory measure is intended to ensure that internal resources are retained to meet existing and future obligations and to support the orderly restoration of sound prudential positions,” the CBN said.    

Loan defaults

The second factor driving the increase   in banks’ NPLs is the   upward trend in loan defaults especially by businesses.  

According to the Credit Condition Report of CBN, banks recorded higher loan defaults by corporates in the last three quarters of 2025.  

In Q2’25, the CBN disclosed that, “Lenders reported higher default rates for Secured and Unsecured lending. For Corporate lending, all business types reportedly had higher default rates.”

Similarly, in Q3’25, the apex bank said: “Lenders reported lower default rates for Secured lending, while Unsecured and Corporate lending of all business types recorded higher default rates.”

Also in Q4’25, the CBN said: “Lenders reported higher default rates for Secured, Unsecured and all Corporate lending types in Q4 2025.”  

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