By Blaise Udunze

The latest in the Nigerian banking sector, as banks grapple with the recapitalization compliance deadline, is confronted with a familiar yet unsettling problem that stems from rising loan defaults amid expanding credit. Data from the Central Bank of Nigeria’s (CBN’s) latest macroeconomic outlook of 2025 showed that the banking industry’s Non-Performing Loans ratio climbed to an estimated 7 percent, pushing the sector above the prudential ceiling of 5 percent.

This deterioration has occurred even as banks report improved credit availability and strong loan demand across households and corporates. At first glance of the development, the narrative seems to defy logic in a real sense. However, below this lies a deeper story of macroeconomic strain, policy-induced shocks, and, most worryingly, persistent corporate governance abuses that continue to erode asset quality from within.

To be clear, Nigeria’s current wave of loan defaults cannot be blamed on reckless borrowers alone. The operating environment has become unusually hostile. Inflation, as reported by the National Bureau of Statistics (NBS), recently suggests that headline inflation is cooling and growth indicators show tentative improvement; regrettably, more Nigerians are slipping below the poverty line, eroding household purchasing power and raising operating costs for businesses.

Especially in the small and medium-sized enterprises, though, the economic growth appears positive, but has been uneven and insufficient to offset cost pressures in this space. This has heralded weak consumer demand that has squeezed revenues across retail, manufacturing and services, causing shrinking cash flows and also loan obligations remain fixed or, in many cases, rise. In such conditions, repayment stress is inevitable.

Tight monetary policy has compounded the problem. The CBN’s aggressive rate hikes, aimed at restoring price and exchange-rate stability, have significantly raised lending rates. Variable-rate loans have become more expensive mid-tenure, and businesses that borrowed under lower-rate assumptions now face repayment shocks. Even otherwise viable firms have found themselves pushed into distress as interest expenses consume a growing share of income. Going by the official survey for the last quarter of 2025, it shows that financial pressure on borrowers has intensified as more borrowers are failing to repay loans across all major categories for both secured loans, unsecured loans and corporate loans.

Exchange-rate volatility has delivered another blow. The naira’s depreciation and FX reforms have sharply increased the burden on borrowers with dollar-denominated loans but naira income. Import-dependent businesses have seen costs surge, while FX scarcity continues to disrupt production and trade cycles. For many firms, the problem is not poor management but currency mismatch. Loans that were sustainable under a more stable exchange regime have become unserviceable almost overnight.

Layered onto these macro pressures is Nigeria’s weak business environment, which has further worsened the situation, alongside chronic power shortages forcing firms to rely on costly alternatives, logistics challenges and insecurity disrupting supply chains, and regulatory uncertainty complicates planning. More on the burner that has continued to heighten the challenges is the multiple taxation and compliance burdens, further compressing margins. In survival mode, businesses naturally prioritise payrolls, energy, and raw materials over debt service. Defaults, in this context, are often a symptom rather than the disease.

Yet while these systemic pressures explain much of the stress, they do not tell the whole story. A critical and often underemphasised driver of rising loan defaults lies within the banks themselves, most especially corporate governance abuse, which emanates particularly from insider-related lending. This is the uncomfortable truth that Nigeria’s banking sector has struggled to confront decisively.

Corporate governance, at its core, is about discipline, accountability, and oversight. In the banking context, it determines how credit decisions are made, how risks are assessed, and how early warning signs are addressed. Where governance is weak, loan quality inevitably suffers. Nigeria’s history offers painful lessons, especially the banking failures of the 1990s to the post-2009 crisis clean-up, insider lending and boardroom abuses have repeatedly emerged as central culprits.

Recent evidence suggests that the problem has not disappeared. Industry estimates indicate that a significant portion of bad loans remains linked to insider and related-party exposures. Former NDIC officials have disclosed that, historically, directors and insiders accounted for as much as 40 per cent of bad loans in deposit money banks, with a handful of institutions holding the majority of insider-related NPLs. It would be said that governance frameworks have improved since then, but enforcement gaps still persist.

Insider abuse manifests in several ways. Loans are extended to directors, executives, or connected parties with inadequate due diligence. Credit decisions are influenced by relationships rather than repayment capacity, and this has been one of the critical problems as collateral is overvalued, covenants are weak, and stress testing is often superficial. When early signs of distress emerge, enforcement is delayed, restructuring is repeated without fundamental improvement, and recoveries are treated with undue caution to avoid internal embarrassment or exposure.

The result is predictable. These loans default faster and are harder to recover. Worse still, they distort bank balance sheets by crowding out credit to productive sectors. When insiders default, the signal to the wider market is corrosive. Here, credit discipline is optional, and accountability is selective, and it further fuels moral hazard, encouraging strategic defaults even among borrowers who could otherwise repay.

Governance failures also weaken loan recovery processes. Poorly empowered risk and audit committees miss warning signs or fail to act decisively because the system has been built to fail. Legal remedies are pursued slowly, if at all. In an environment where judicial delays already undermine contract enforcement, such reluctance turns manageable problem loans into fully impaired assets. Over time, NPLs accumulate not because recovery is impossible, but because it is poorly pursued.

Compounding these internal weaknesses are government policy shifts and fiscal stress, which have become major external shock absorbers for bank balance sheets. Policy inconsistency has made cash flow planning increasingly difficult for borrowers. For instance, the sudden tax changes or aggressive enforcement drives will definitely alter cost structures overnight. Delays in government payments to contractors starve businesses of liquidity, and this will surely push otherwise solvent firms into default. In theory, although removing fuel subsidies, while economically justified, have often occurred without adequate transition buffers, transmitting immediate cost shocks across energy, transport, and consumer goods sectors.

The banking sector, heavily exposed to government-linked projects and regulated industries, absorbs these shocks directly. Loans tied to this sector showed that the banks are hugely exposed to oil and gas, power, and infrastructure; they are particularly vulnerable when fiscal pressures delay receivables or alter contract economics. For instance, a total of 9 banks’ exposure to the Oil & gas sector increased to N15. 6 trillion in 2024, representing about 94.4per cent increase from N10. 17 trillion reported in 2023 financial year. It is therefore no coincidence that NPL concentrations remain high in these sectors. In effect, fiscal stress is being intermediated through bank balance sheets.

When the CBN ended the special leniency measures known as forbearance in 2025, the real extent of loan stress in the banking industry became much clearer. For a longer time, pandemic-era reliefs allowed banks to renegotiate stressed loans without immediately classifying them as non-performing. While this helped preserve surface stability, it also masked underlying vulnerabilities. With the end of forbearance, many restructured facilities have crystallised as bad loans, pushing the industry NPL ratio above the prudential ceiling. This does not mean risk suddenly increased; it means it is now being recognised.

To the CBN’s credit, transparency has improved as the industry witnessed stricter classification rules and reduced forbearance have forced banks to confront economic truth rather than regulatory convenience. And, despite the challenges, the financial system appears to be generally sound because banks have enough cash to meet obligations and sufficient capital buffers that still exceed regulatory floors, while these buffers are under pressure. Though the ongoing recapitalisation efforts are expected to provide additional buffers.

However, stability should not be confused with health. Rising NPLs, even in a liquid system, carry real consequences. Banks must set aside provisions, eroding profitability and capital. Credit supply tightens as lenders grow cautious, starving the real economy of funding. One known fact is that the moment governance and transparency concerns grow, investors, particularly foreign ones, become less willing to commit capital and this loss of confidence eventually slows down overall economic growth.

The policy response, therefore, must go beyond macroeconomic management. While stabilising inflation and the exchange rate is essential, it is not sufficient. Governance reform within banks must be treated as a systemic priority, not a compliance exercise. Insider lending rules must be enforced rigorously, with real consequences for violations. Boards must be strengthened, not merely in composition but in independence and courage. Risk and audit committees must be empowered to challenge management and act early.

Equally important is addressing the fiscal-banking nexus. The government must recognise that policy volatility and payment delays are not costless. They translate directly into higher credit risk and weaker financial intermediation. A more predictable policy environment, timely settlement of obligations, and credible transition frameworks for major reforms would significantly reduce default risk without a single naira of direct intervention.

The Global Standing Instruction framework, which the CBN continues to promote, can help improve retail and MSME recoveries. But frameworks cannot substitute for culture. Credit discipline begins at the top. When banks lend to themselves without consequence, the entire system pays the price.

Nigeria’s rising loan defaults are not merely an economic statistic; they are a governance signal. They reflect a system under stress, yes, but also one still wrestling with old habits. If recapitalisation is to be meaningful, it must be accompanied by recapitalisation of trust, through transparency, accountability, and consistent policy. Otherwise, the cycle will repeat the same strong balance sheets on paper, weak loans underneath, and another reckoning deferred, but not avoided.

Blaise, a journalist and PR professional, writes from Lagos and can be reached via: [email protected]

Paystack, the leading African payments platform solving complex financial challenges for businesses across the continent, has launched The Stack Group (TSG), a new parent holding company that consolidates its expanding family of technology brands.

Paystack

Founding shareholders of TSG include global payments giant Stripe, Paystack Founder and Chief Executive Officer Shola Akinlade, and key employees from the Paystack team, with agreements formalised in October 2025 pending necessary regulatory approvals.

Since Stripe’s strategic acquisition of Paystack in 2020, the company has recorded exponential growth, achieving a 12-fold increase in payment volumes while securing licences and operations in five African markets—Côte d’Ivoire, Ghana, Kenya, Nigeria, and South Africa—alongside regulatory approvals for Egypt and Rwanda, collectively representing approximately 46 percent of Africa’s gross domestic product.

This pan-African expansion, driven by a product-first strategy, has propelled Paystack to profitability at the group level, a key milestone announced alongside the TSG launch.

The formation of TSG follows closely on the heels of Paystack Microfinance Bank’s (MFB) recent debut in Nigeria, operating as a fully independent bank to internalise critical financial infrastructure and deliver banking and credit services tailored for more than 300,000 Nigerian merchants.

These integrated capabilities empower the development of seamless, compliant end-to-end money movement solutions, reinforcing Paystack’s core mission to build innovative technology that fuels African ambition and addresses unique continental business needs.

Under the TSG umbrella, the portfolio encompasses Paystack for merchant payment innovations, Zap for consumer-focused payments, Paystack MFB for banking services, and TSG Labs dedicated to pioneering emerging technologies and developing novel products both within financial technology and beyond.

Each entity maintains operational independence while sharing core values and specialised expertise in crafting solutions for Africa-specific challenges, fostering synergies across complementary domains.

Shola Akinlade, speaking on the landmark development, declared that the launch of TSG heralds an era of broader ambition, setting the strategic direction for the company’s next decade of impact.

“Having partnered with thousands of businesses continent-wide since 2016, the vast opportunities to extend support beyond payments are evident, and TSG positions us to confront the multifaceted hurdles African enterprises encounter,” Akinlade stated.

He extended gratitude to the Stripe team for their unwavering faith in Africa’s technological promise and Paystack’s capacity to pioneer transformative innovations for the continent and global markets.

This corporate restructuring coincides with Paystack’s 10-year anniversary celebrations in January 2026, underscoring a decade of resilience, innovation, and market leadership in Africa’s burgeoning digital economy.

Industry observers view TSG as a bold masterstroke that not only safeguards Paystack’s legacy but also amplifies its potential to shape the future of financial services, commerce, and technology across Africa at a time of rapid digital transformation and heightened investor interest in the region’s fintech ecosystem.

Kuda has updated its business banking services to allow NGOs and incorporated trustees to open and manage business accounts entirely online. The move means religious organisations, charities, and other registered organisations no longer have to navigate the long wait and paperwork traditionally associated with setting up a business account.

Nosa Oyegun,

On the Kuda Business app, organisations registered with Nigeria’s Corporate Affairs Commission (CAC) can choose the NGO option during signup, submit their CAC documents, and provide trustee details. Once verified, accounts are activated within minutes, a significant reduction from the days or weeks it can take under traditional business banking processes.

For many NGOs and religious institutions, handling donations, grants, and operational expenses has long been slowed by manual systems and branch-based requirements.

The Kuda Business update is expected to make financial management faster and more transparent, allowing organisations to focus on their mission instead of battling administrative bottlenecks.

Nigeria is home to thousands of registered NGOs and religious organisations, with Lagos State alone accounting for over 10,000 churches and mosques as of the last count in 2021. Across the country, incorporated trustees play a critical role in education, healthcare, humanitarian response and community development. Despite their scale and economic relevance, access to modern digital banking tools has remained limited for many of these institutions.

Nosa Oyegun, SVP Business Banking at Kuda, said the update is proof of Kuda’s focus on removing structural barriers that slow Nigerian organisations down. “NGOs and religious organisations are responsible for managing funds that directly impact communities, yet they are often forced to operate with outdated banking processes,” he said.

“By enabling incorporated trustees to open Kuda Business accounts entirely online quickly, we’re giving these organisations access to the same modern financial tools built by Kuda that other businesses already use, so they spend less time doing admin work.”

With Kuda Business, NGOs and religious organisations can manage incoming donations and grants, make payments, track transactions in real time, generate professional account statements for audits and reporting, and grant controlled access to trustees, treasurers and administrators, all on a single app.

Kuda designed the account signup process to meet regulatory requirements while significantly reducing manual reviews and customer support workload. Automations shorten notoriously long business signup timelines while improving information accuracy and user experience.

As reforms promoting cashless payments and digital financial services take hold in Nigeria, NGOs and religious organisations are under increasing pressure from donors, partners and regulators to operate with greater financial transparency and efficiency.

The new Kuda Business update is therefore timely, offering a dedicated digital account specifically designed for this segment, unlike many traditional banks and fintech platforms that treat incorporated trustees as special cases requiring comparatively slower manual intervention.