At the peak of the COVID-19 pandemic in 2020, many Nigerian businesses faced severe financial strain, prompting a wave of loan defaults and credit risks across the banking sector. To cushion the impact, CBN introduced regulatory forbearance, an emergency measure that allowed Deposit Money Banks (DMBs) to restructure loans without classifying them as non-performing. This allowance helped to preserve profitability and prevent a credit crunch, particularly in highly exposed sectors such as oil & gas, power, and agriculture.
Shift Toward Prudential Normalcy
However, with macroeconomic conditions improving and DMBs nearing the last hurdle of the recapitalization exercise, the CBN has directed all banks still relying on regulatory forbearance or breaching Single Obligor Limits (SOL) to immediately suspend dividend payments, defer executive bonuses, and halt offshore investments. The SOL restricts DMBs from lending more than 20% of their shareholders’ funds to a single obligor or related parties, in order to limit concentration risk. The CBN’s decision signals a return to more conservative risk management and aims to ensure that banks’ financial statements reflect true asset quality.
A Stress Test for the Banking Sector
With the withdrawal of forbearance, DMBs will have to make full provisions for previously deferred credit losses, which could put pressure on their earnings performance and invariably their capital adequacy ratios. Recent reports show that while GTCO and Stanbic IBTC reportedly have no outstanding forbearance positions as this was said to have been recognized in their financial statements, Zenith Bank (23%), FBN Holdings (14%), and Fidelity Bank (10%) have the highest share of forborne loans relative to total lending, making them more vulnerable to this regulatory transition.
However, Zenith Bank has responded proactively, assuring stakeholders of its intention to regularize affected loans ahead of the deadline. The bank disclosed that its exposures relate to a single obligor under the SOL and two customers under forbearance, all of which will be regularized before June 30, 2025. Access Bank has also issued a corporate disclosure affirming its compliance with the Single Obligor Limit. The bank also assured the public of its commitment to meet the CBN’s regulatory forbearance requirements on credit facilities by June 30, 2025, while continuing to maintain strong capital buffers and uphold its dividend policy.
Market Reaction
The CBN’s announcement triggered a kneejerk reaction, with significant selloffs across the banking sector. The NGX banking index declined by 4.18% in the first two trading sessions of the week, as investors reacted to potential earnings and dividend risks. Stocks of Sterling Bank, UBA, Access Bank, FBN Holdings, Zenith, and Fidelity were among the most affected. However, Zenith Bank’s prompt disclosure regarding its forbearance exposure helped calm market nerves, leading to a 3.2% rebound in its share price to N48.50 on June 18.
Other banks are expected to issue similar clarifications in the coming days, as improved disclosure will be essential in restoring investor confidence and minimizing further volatility. That said, institutions unable to comply with the CBN’s regularization directive may be barred from paying interim dividends, a key concern for dividend-focused investors.
Notwithstanding, we expect the CBN’s move to support the long-term health of the financial system. As loan provisioning stabilizes and clarity improves, banks with strong fundamentals and limited exposure to forbearance are likely to see renewed investor interest.
