E-Financial
Expiry of Loan Forbearance to Test Nigerian Banks’ Capital Buffers- Fitch
Nigerian banks are facing a potential increase in impaired loans and fresh pressure on their capital buffers as regulators prepare to withdraw systemwide forbearance measures that have underpinned the sector since the country’s last major financial shock, according to Fitch Ratings.
The credit rating agency, in a commentary published this week, cautioned that the expiry of forbearance arrangements by the middle of 2025 will trigger the reclassification of large volumes of risky loans, raising impaired loan ratios and testing banks’ ability to maintain adequate capitalisation levels.
The warning comes as Nigerian lenders undergo a complex operating environment marked by high inflation, elevated interest rates, and shifting regulatory demands, even as recent reforms have strengthened earnings and liquidity.
Systemwide forbearance (Regulatory relief measures that allowed banks to avoid classifying certain stressed assets as non-performing), has provided temporary breathing space since the COVID-19 crisis and subsequent naira volatility. Fitch estimates that the vast majority of Nigerian banks will exit these arrangements by the end of 2025.
The agency said the transition will be disruptive, stating: “The expiry of forbearance will lead to some large Stage 2 loans being reclassified as impaired,” it noted. Stage 2 exposures are loans that show signs of significant credit deterioration but are not yet considered in default.
As these migrate into the impaired category, reported non-performing loan (NPL) ratios are expected to rise materially, with knock-on effects for provisioning and capital adequacy. Total capital adequacy ratios (CARs), already stretched for some mid-tier lenders, could come under notable pressure, Fitch said.
Banks that fail to meet prudential thresholds may continue under forbearance but will face penalties, including restrictions on dividend payments, a potential concern for investors in an industry long valued for its high payout ratios.
Despite the looming risks, Fitch emphasised that Nigerian lenders are not entirely unprepared. Many banks have undertaken proactive loan restructurings to improve repayment profiles, while a wave of capital-raising activity has been set in motion by the Central Bank of Nigeria’s (CBN) decision to sharply raise minimum paid-in capital requirements earlier this year.
Improved profitability has also given banks more cushion.
Net interest margins have widened on the back of higher yields, enhancing loss-absorption capacity and providing a buffer against prospective impairment charges.
“This will help counteract increased loan impairment charges and prudential provisions resulting from the expiry of forbearance,” Fitch noted, pointing to stronger earnings as an important offset to asset quality pressures.
One bright spot has been the banking sector’s foreign-currency liquidity profile, which has benefited from the CBN’s exchange rate liberalisation and subsequent naira devaluations.
According to Fitch, the reforms have boosted turnover in the foreign-exchange market and improved banks’ access to hard currency.
This will prove critical as lenders face external debt maturities in the coming years. This is even as Nigerian banks have Eurobonds worth $2.2 billion maturing or callable by 2026.
Fitch said most institutions hold sufficient liquidity to meet these obligations without resorting to refinancing.
This is considered a marked contrast to previous periods when access to international capital markets was limited.
Nonetheless, structural challenges continue to weigh on the industry.
Nigeria’s inflation rate, which has held above 20 per cent for much of the past two years, is eroding real returns and complicating monetary policy transmission. Interest rates are expected to remain high in the near term, further constraining credit expansion.
At the same time, regulatory burdens remain highly onerous, Fitch said, with banks facing compliance demands that add to operating costs and restrict flexibility.
Analysts also warn that sovereign risks including Nigeria’s rising debt stock and fiscal pressures, could spill over into the banking system, particularly given lenders’ large holdings of government securities.
Renaissance Capital Africa (Rencap) has named Zenith Bank Plc its top conviction pick among Nigerian banks, ahead of GTCO and AccessCorp, in a fresh research report highlighting the lender’s robust balance sheet and dividend potential despite sector headwinds.
Zenith Bank
The comprehensive review of the Nigerian banking industry notes that Zenith’s current market valuation lags its improving fundamentals, even as the NGX Banking Index posts strong gains recently.
Rencap upgraded Zenith from HOLD to BUY, lifting its target price by 96 per cent based on a lower risk-free rate from falling government bond yields, refined beta estimates, and expectations of cleaner assets post-forybearance resolutions.
Balance Sheet Strength Drives Outlook
Analysts project challenges to earnings growth from anticipated Central Bank of Nigeria (CBN) rate cuts but foresee higher dividend payouts from resolved forbearance and single obligor loan (SOL) exposures alongside rising cash profits.
“Although we expect banks to face challenges in growing earnings… the balance sheet clean-up… will support higher dividend payouts relative to prior years,” the report states, ranking Zenith first, followed by GTCO and AccessCorp.
Key positives include loan write-offs that bolstered asset quality, enabling sustainable growth amid financial system reforms.
Dividend Recovery in Focus
Sector profitability from 2023-2024 was inflated by unrealised foreign exchange gains, which regulations barred from cash dividends, capping payouts despite headline profits.
Zenith historically led payout ratios in 2021-2022 via strong cash generation and capital discipline; Rencap expects a rebound as pressures ease, attracting income-focused investors.
Tier-1 Leadership Reinforced
Zenith Bank recently topped Nigeria’s tier-1 capital rankings for the 16th straight year, per The Banker magazine (Financial Times), affirming its resilience and positioning for long-term value creation.
CBN
- Access Bank Plc
- Fidelity Bank Plc
- First Bank of Nigeria Ltd
- Guaranty Trust Bank (GTBank)
- United Bank for Africa (UBA)
- Zenith Bank Plc
- FCMB (First City Monument Bank) – currently pushing to raise additional capital to secure its international licence.
- Wema Bank
- Standard Chartered Bank (Nigeria)
- Citibank Nigeria
- Stanbic IBTC Bank
- Sterling Bank
- Globus Bank
- Premium Trust Bank
The Securities and Exchange Commission (SEC) has revised the minimum capital applicable to all categories of regulated capital market entities after 10 years.
The minimum capital review, according to the SEC, is informed by the need to strengthen market resilience, enhance investor protection, align capital adequacy with the evolving risk profile of market activities, and ensure that regulated entities possess sufficient financial capacity to discharge their obligations in a sustainable manner.
“The revised Minimum Capital framework seeks to: enhance the financial soundness and operational resilience of market operators; align capital requirements with the scope, complexity, and risk exposure of regulated activities; promote market stability and systemic risk mitigation; and support innovation and orderly development of new market segments, including digital assets and commodities markets,” SEC said in a January 16 circular to market operators.
The SEC circular was sent to all entities regulated by the Commission, including but not limited to core and non-core capital market operators; market infrastructure institutions; capital market consultants; financial technology (FinTech) operators; Virtual Asset Service Providers (VASPs); and Commodity market intermediaries.
All affected entities are required to comply with the revised Minimum Capital Requirements on or before June 30, 2027, the circular said.
“Entities that fail to meet the prescribed requirements within the stipulated timeline shall be subject to appropriate regulatory sanctions, including suspension or withdrawal of registration, as may be determined by the Commission,” SEC said.
Tier-1 Portfolio Managers (Full Scope) involved in the management of Collective Investment Schemes (CIS) and Alternative Investment Funds (Private Equity, Venture Capital, Infrastructure Funds etc) above N20 billion Net Asset Value (NAV), or discretionary and Non-Discretionary Private Portfolio Management Services above N20 billion Assets under Management (AuM), or exposure to foreign instruments up to 40 percent of the NAV are now required to have a minimum capital of N5 billion as against N150 million.
“Any Fund and Portfolio Manager with NAV/AuM of more than N100billion should have a minimum of 10 percent of the NAV/AuM as capital,” SEC added.
For the Tier-2 fund/portfolio managers (Limited Scope) who are in the business of management of Collective Investment Schemes with limited pooled fund creation of not more than 10 times the required capital (N20 billion) on Net Asset Value (NAV), or discretionary and non-discretionary private portfolio management services of not more than N20 billion, or those exposure to foreign instruments of not more than 20 percent of the NAV, now require N2 billion as minimum capital as against low of N150 million.
Likewise, broker-dealers whose services include: client execution, proprietary trading, margin/securities lending and advisory services no longer require N300 million minimum capital to operate but N2 billion.
The SEC said the minimum capital review from 2015 low is in line with its mandate under the Investments and Securities Act 2025 to regulate and develop the Nigerian capital market.
Also, Tier 1 issuing houses who do non-interest finance services, advisory & arrangement services but no underwriting now require N2 billion as against N200 million; while Tier 2 –issuing houses with underwriting and offers a ‘one-stop-shop’ for issuers, provides underwriting services, and renders advisory and product development services require N7 billion minimum capital for this business as against N200 million.
Also, the minimum capital requirement for brokers (client execution only) has been jacked up from N200 million to N600 million, while that of dealers (proprietary trading only) has been moved from N100 million to N1 billion.
Broker-Dealers’ (client execution, proprietary trading, margin/securities lending and advisory services) has been raised from N300 million to N2 billion, while Sub-Brokers’ (Digital) from N10million to N100million; Sub-Broker (Corporate) has been increased from N10million to N50 million. Also, sub-brokers’ (Individual) now need N10 million minimum capital for the business as against N2 million while inter-dealer brokers require N2 billion as against N50 million.
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