General News
How Inside Jobs and Policy Shocks Trigger Nigeria’s Rising Loan Crisis
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]
Government of Guinea-Bissau has signed a Memorandum of Understanding (MoU) with Nigeria’s United Nigeria Airlines to establish AIR BISSAU, a national carrier, for the West African country, to boost its aviation industry and reduce its dependence on foreign airlines.
The agreement, signed in Bissau, the capital of Guinea-Bissau, was disclosed in a statement made available by the airline on Sunday.
The MoU was signed by Dr Florentino Pereira, minister of Transport, Telecommunications and Digital Economy, Guinea-Bissau and Prof Obiora Okonkwo, executive chairman of United Nigeria Airlines.
Recall that Nigeria currently has no national carrier despite repeated calls by industry stakeholders for its establishment to facilitate reciprocal flight rights to foreign destinations, particularly the United States.
Attempts to establish a national carrier through a partnership with Ethiopian Airlines also hit a brick wall following lawsuits by the Airline Operators of Nigeria, an association for which Okonkwo once served as spokesperson.
Other factors that contributed to the failure of the national carrier project included deep-seated political issues, allegations of fraud and a controversial ownership structure.
In the latest agreement between the Nigerian airline and Guinea-Bissau, which was made available to our correspondent, both parties will “explore a comprehensive cooperation framework aimed at establishing a fully operational national airline with Osvaldo Vieira International Airport in Bissau serving as the operational base and hub for the carrier’s initial routes.”
For decades, Guinea-Bissau has relied largely on regional carriers and charter services to connect its citizens and businesses to other countries.
A key component of the MoU is the creation of a joint venture company that will operate as Guinea-Bissau’s national airline.
Under the arrangement, United Nigeria Airlines will provide the majority of the financial investment, operational expertise, aircraft and management for the new carrier.
Extending beyond commercial operations, the Nigerian carrier is expected to “provide and operate an executive jet for the use of the President and Government of Guinea-Bissau.”
To facilitate the project, the government pledged to “facilitate the registration and licensing of the new national carrier in line with domestic laws and streamline authorisation processes through both the Civil Aviation Authority of Guinea-Bissau and the Civil Aviation Authority of Nigeria.”
Guinea-Bissau also agreed to designate AIR BISSAU as its official national carrier, granting it “full rights over all existing Bilateral Air Services Agreement entitlements.”
According to the MoU, the designation would give the airline “significant leverage in securing route rights and authorisations to regional and international destinations,” described as an important commercial and diplomatic asset.
The government further committed to ensuring that Osvaldo Vieira International Airport receives the infrastructure support required for the airline’s operations, including access provisions, ground support services and assistance with customs, immigration and security compliance.
Additionally, Guinea-Bissau pledged to invest in the establishment of the airline and create mechanisms that would protect and incentivise investment through the existing Investment Code and applicable tax frameworks.
As part of efforts to develop local aviation expertise, United Nigeria Airlines plans to train “qualified Guinean nationals including pilots, cabin crew, and technical maintenance personnel” and employ local staff wherever feasible in line with government employment policies.
The MoU makes it clear that operational control of the airline will remain with the Nigerian carrier.
“For the purposes of safety, reliability, and efficiency, the overall management, operational control, and general direction of the new airline will rest with the management team of United Nigeria Airlines,” the statement noted.
Both parties also agreed to provide full liability and hull insurance coverage for all flight operations, conduct annual independent safety and maintenance audits, and establish asset protection mechanisms for investors.
The agreement takes immediate effect and will remain valid for 18 months or until a substantive joint venture agreement is concluded.
The International Monetary Fund (IMF) has recommended introducing taxes on fuel products and telecommunications services in Nigeria.
According to the IMF, this is part of broader measures to increase government revenue and create fiscal space for development spending and social interventions.
The international financial organization argued that stronger revenue mobilisation had become increasingly important as Nigeria’s fiscal position remained under pressure despite recent reforms.
This comes as Nigerians are protesting against worsening standard of living made worse by widespread insurgency.
The recommendation was contained in the IMF’s 2026 Article IV Consultation report on Nigeria, where the Fund argued that additional tax measures would be needed over the medium term despite the recent overhaul of the country’s tax system.
“Further tax policy changes will likely be needed—such as increasing the VAT rate, extending VAT to fuel products, rationalising tax expenditures in particular VAT exemptions on extractive industries and some customs duties, and introducing telecom excises—to complement administrative gains,” the IMF said.
The institution, however, cautioned that the timing of any new taxes must take into account Nigeria’s rising poverty levels and worsening food insecurity.
“The timing of reforms must consider the poverty and food insecurity situation and ensure that the cash transfer system is in place and funded,” the Fund added.
A previous attempt by the Federal Government to impose a five per cent excise duty on telecom services met strong resistance from operators, subscribers and consumer advocacy groups before it was suspended and eventually scrapped.
Telecommunications firms had maintained that the industry was already weighed down by multiple taxes, rising energy costs, foreign exchange challenges and infrastructure constraints.
They warned that any additional levy would likely be transferred to consumers through higher call and data tariffs.
Similarly, proposals to tax fuel products have faced opposition from labour unions and private sector organisations amid concerns over the rising cost of living following the removal of petrol subsidies and increases in transport and food prices.
The IMF’s latest recommendation comes as the Fund projects that Nigeria will require stronger revenue mobilisation efforts to sustain planned increases in public spending and provide support for vulnerable households.
According to the report, revenue-enhancing tax policies could generate additional revenue equivalent to 3.9 per cent of Gross Domestic Product within three years of implementation.
The Fund identified a two-percentage-point increase in the Value Added Tax rate as the largest contributor, with a projected revenue gain of 0.8 per cent of GDP.
The report also projected that removing pioneer status incentives and revising free zone regulations would generate an additional 0.7 per cent of GDP.
Reforms to capital gains taxation and adjustments to personal income tax bands, allowances and rates were each estimated to contribute 0.6 per cent of GDP.
The IMF further estimated that a top-up tax on multinationals and large firms could raise 0.5 per cent of GDP, while rationalising investment allowances would contribute another 0.4 per cent.
Notably, the category labelled “others”, which includes telecom excise duties and measures such as a carbon tax on fuel, was projected to generate an additional 0.4 per cent of GDP in revenue.
Beyond new tax measures, the Fund said Nigeria could achieve even greater gains through improved tax administration.
It projected that administrative reforms would generate an additional 3.1 per cent of GDP through better compliance, stronger enforcement and efforts to reduce informality in the economy.
According to the report, measures such as fiscalisation, electronic invoicing and cross-validation of tax deductions could generate 1.5 per cent of GDP, while expanded tax identification registration and consolidation of taxpayer databases could contribute a further 1.6 per cent of GDP.
The IMF acknowledged that some of Nigeria’s recently enacted tax reforms would reduce government revenue in the short term because they were designed to support households and small businesses.
It estimated that revenue-reducing measures would lower revenues by 2.4 per cent of GDP.
Expanded VAT input credits, additional zero-rated items and broader exemptions on basic consumption goods were projected to account for 1.7 percentage points of the decline.
Lower corporate income tax obligations for smaller firms would reduce revenues by 0.4 per cent of GDP, while lower personal income tax rates and expanded exemptions for low-income earners would account for another 0.3 percentage-point reduction.
Overall, the IMF projected that the combined impact of revenue-enhancing measures, administrative reforms and revenue-reducing policies would result in a net increase in government revenue equivalent to 4.6 per cent of GDP over the medium term.Nigerian investment opportunities
MTN Nigeria, through The Gathering on 100, has officially unveiled the next chapter of its youth cultural and creative movement in Aba, the home of entrepreneurship and innovation in Eastern Nigeria.
The initiative transformed the Prime Time Event Centre in Osisioma into a vibrant hub of innovation, culture, lifestyle, and entertainment.
As the second major activation of MTN’s ‘Live It 100’ campaign, this event underscores a bold commitment to encouraging young Nigerians to live life to the fullest of their potential, whether in business, tech, culture, or entertainment.
Central to this immersive experience is the highly anticipated Pitchathon, where 10 standout startups are vying for a total prize pool of ₦5 million.
The participating startups represent a cross-section of Aba’s burgeoning innovation ecosystem, tackling challenges ranging from logistics to artisanal tech.
Among them are Trashverse Recycling Technology Limited, a climate-first recycling solution founded by Charles Ikechukwu; SkillsCircle by Together, an ed-tech platform championed by Ijeoma Irene to empower young professionals in Nigeria; and Poptreaties, a healthy snack alternative founded by Ifeanyichukwu Dominion to curb junk food consumption.
These founders and their peers are showcasing solutions that blend local ingenuity with scalable technological frameworks, highlighting the immense potential of the region’s entrepreneurial spirit.
The pitchathon is judged by three esteemed figures in the African innovation ecosystem: Chiemela Anosike (Founder, Solaris GreenTech Hub), Dr. Chime Chimezie-Uche (Founder, Abia Startup Limited), and Justina Nwokedi (Digital Transformation Specialist).
This competition is designed to spotlight and empower early-stage founders in the city, providing them with a platform to validate their business ideas before investors, consumers, and industry stakeholders.
The prize structure offers ₦2.5 million to the winning startup, ₦1.5 million for the first runner-up, and ₦1 million for the third-place winner.
This Aba edition builds on the success of the Lagos edition, which took place from April 22 to 26 at the National Stadium, Surulere. There, eight startups received a collective ₦45 million in seed funding for solutions ranging from fintech to creative technology.
By bringing this platform to Aba, a city renowned for its industrial and entrepreneurial spirit, organizers aim to deepen access to opportunity and support the next generation of business leaders.
For these 10 startups, the Pitchathon is a vital opportunity to gain visibility, engage with potential partners, and accelerate their growth within a high-density environment of innovation.
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