E-Financial
Report Raises Concerns over Health of Nigerian Banks
A number of banks in Nigeria are living on borrowed time as they struggle to recover sticky assets and pare down their loan loss provisions, according to Business Hallmark.
The report said that the banks are buried in a heap of poor quality loan assets in the guise of high none performing loans (NPL’s) and that all may not be as well with the banks as the domestic regulator, Central Bank of Nigeria (CBN), would have many believe.
Indeed, recently the international credit rating agency, Fitch, marked a down grade in the credit ratings of virtually all Nigerian banks as the agency pointed to the worsening condition of their credits.
Within the year Fitch’s analysts downgraded the outlook for four Nigerian banks from stable to negative; the banks were Zenith Bank, GT Bank, First Bank and Diamond Bank.
The problems with the banks downgraded were attributed to, ‘heightened vulnerability of capital due to downside asset quality risks’ which in simpler terms meant that these banks were finding it increasingly difficult to get back the monies that they lent to customers.
Third quarter 2017 results for nearly all the banks have been dyed in rose colour. Nine months’ results for the banks have shown profit figures glide up as the economy edges out of recession. But how real are the numbers?
Truth be told with discussions with a fair number of bankers who did not want their names put in print, the profit tally for most of the banks, ‘where beautiful Picasso replicas, as brilliant as they were; they were all fake’ said a senior manager of one of the banks with headquarters in Victoria Island, Lagos.
The banker insisted that, ‘you cannot make omelets without breaking eggs, with interest rates at double digits and manufacturers rolling in escalating debt as retailers groan in agony, how the heck does a bank make money with customers hung over a barrel?’, he asked pensively.
When it was pointed out that banks had stopped granting credit and had actually become more comfortable simply buying treasury instruments at double digit yields he agreed but noted that, ‘banks may have been able to turn a trick or two by buying treasuries over the last two years, but that is not core retail banking; it is more of an investment banking function and it still does not address the problem of proper loan loss charges against risk assets that have already been created.’
In other words most banks have made inadequate provisions for loan impairments or bad credits and have simply engaged in a number of clever accounting rouses to restructure bad loans to make them appear hale and perhaps hearty.
It is obviously difficult to establish how bad Nigerian commercial bank loan portfolios precisely are, especially as even the Central Bank of Nigeria (CBN), the sector’s chief regulator, and the Nigerian Deposit Insurance Company (NDIC) often get caught on the wrong foot as bank examiners serially underestimate impairment charges required by banks to cover their deteriorating loan assets.
This has led to independent observers classifying bank loans as a mixture of financial fact, fiction and something one analyst recently called ‘faction’, a grey area between reality and outright falsehood.
Peering through reams of recently published financial data is not likely to shed very much light on the warm matter of bank assets and capital adequacy.
The problem of poor bank loan books is not just that of the smart reclassification of bank loans by managers form non-performing to performing but also the accounting convention of using historical valuation of bank assets rather than adjustment of the assets on the books by marking to market which means that if interest rates go up the value of banks assets simultaneously go down and vice versa.
It would also mean that the increasing riskiness of bank loans when interest rates rise would be better captured on bank books when loan quality is measured as weaker when rates go up; in other words as interest rates go up bank loan quality comes down.
As lending rates have hovered between 25 and 28 per cent over the last two years, bank asset quality has taken a turn for the worse.
The CBN estimates that delinquent loans as a proportion of loans outstanding on average industry wide is about 12 per cent as against the regulatory rate of 5 per cent. But even the twelve per cent claim is disputable.
Investigations suggest a more accurate rate of double that number putting real average loan impairment ratio closer to 25 per cent or a quarter of all loans outstanding. This clearly indicates that banks would have to recapitalize operations to reduce leverage (debt to equity ratio) and build greater strength in balance sheets.
In a telephone conversion with Business Hallmark, Chidi Ajaegbu, former President Institute of Chartered Accountants of Nigeria (ICAN), noted that the challenge of bank credit assets and their current levels of equity was not dire enough to cause major worry, ‘I don’t think we have an immediate systemic problem but something must be done to ensure that we do not slide into systemic distress’. He was of the opinion that banks may need to raise their capital base in 2018 by either rights issue or Initial Public Offers (IPO’s).
Also commenting on the issue, Dr. Afolabi Olowokere of Financial Derivatives Company Limited (FDC) said it is a known fact that the relatively low capital base of banks could constitute a serious problem for such institutions anywhere in the world. ‘It is normal that the capitalisation of banks will be eroded at a time like this if you consider the huge non-performing loans which they have to provide for. I hope the banks do not suffer any shocks because they have links with one another, poor management of one could set off a contagion that hurts all’’, he said.
In his own observations Dr. Adi Bongo, economist and faculty member, Lagos Business School was of the view that the recent Fitch downgrades of local bank was a fallout of the poor macroeconomic management that started last year, adding that the banking industry suffered huge capital flight as portfolio investments that were plugged into banks during the consolidation period, began to pull out on concerns over macroeconomic direction.
He further explained that, ‘Nigeria has been performing poorly in capital importation. As money began to leave the system, banks where many portfolio investors had plunked capital, started having liquidity challenges.’ Noting that, ‘…because of the state of the economy, non-performing loans in banks have increased geometrically. The combination of these two issues has caused banks to face serious challenges, except those that have strong equity bases.’
With calls for bank assets to be marked to market or at least made compliant with International Accounting Standards Board’s (IASB’s) IFRS 9 rules, the days of bankers running rings around regulators in regards to the quality of their balance sheets is slowly fading into distant memory or at least that is the hope
Central Bank of Nigeria (CBN) has restricted banking services for large‑ticket loan defaulters as part of a broader push to enforce credit discipline and protect the stability of the financial system.
CBN
The directive, issued on Wednesday, March 26, 2026, follows public remarks by CBN Governor Olayemi Cardoso at the 4th Annual IMF/AFRITAC West High‑Level Executive Forum in Abuja, where he declared that the era of leniency toward delinquent borrowers is over.
Cardoso said the apex bank is tightening corporate governance measures to safeguard the N4.61 trillion recently injected into the Nigerian banking sector and warned that there would be zero tolerance for violations.
“Our stance on corporate governance is unequivocal: zero tolerance for violations. By ending years of regulatory forbearance, we have reinforced accountability, tightened supervision, and elevated compliance standards across the sector,” he stated.
The new directive targets “large‑ticket obligors,” defined as individuals or entities with significant outstanding debts classified as non‑performing in the Credit Risk Management System.
Under the rules, these defaulters will be barred from accessing fresh credit as well as essential contingent liabilities and trade instruments, effectively cutting off their ability to obtain new loans or trade‑related banking facilities.
The CBN said the restriction is aimed at curbing “credit jumping,” a practice where borrowers move from one financial institution to another to secure additional loans despite existing non‑performing debts.
“We have implemented a restriction of banking services to non‑performing large‑ticket obligors. This decisive step underscores our commitment to credit discipline, financial integrity, and accountability,” the regulator stated.
The policy is intended to instil a long‑absent “culture of repayment,” protect depositors’ funds and reinforce the overall stability of the financial system.
Cardoso added that the CBN remains committed to orthodox monetary policy, focused on restoring price stability, strengthening policy credibility and anchoring expectations through discipline and consistency.
Nigeria Deposit Insurance Corporation (NDIC) has reaffirmed its commitment to protecting depositors and sustaining confidence in the nation’s banking system, declaring that its insurance framework currently safeguards about 99 per cent of customers across Nigerian banks.
Speaking during the NDIC Special Day at the 37th Enugu International Trade Fair, Thompson Oludare, managing director and chief executive, highlighted the Corporation’s role as a critical stabiliser in the financial sector, particularly in times of economic uncertainty.
Addressing participants on the theme, “Empowering MSMEs for global competitiveness”, Oludare said the NDIC remains a dependable backbone for small businesses by protecting their funds against bank failures.
He disclosed that the Corporation reviewed and increased its insurance coverage in 2024 in line with prevailing economic realities. Under the revised structure, depositors in Deposit Money Banks (DMBs), Mobile Money Operators, and Non-Interest Banks are insured up to ₦5,000,000, while those in Microfinance Banks and Primary Mortgage Institutions are covered up to ₦2,000,000.
Explaining the operational mechanism behind depositor protection, Oludare noted that the NDIC does not depend on government funding to reimburse customers of failed banks.
Rather, it draws from the Deposit Insurance Fund (DIF), which is financed through premiums contributed by licensed financial institutions.
He described the process as efficient and sustainable, enabling the Corporation to meet its obligations promptly without placing pressure on public finances.
Highlighting recent technological advancements, the NDIC boss revealed that the use of the Bank Verification Number (BVN) has significantly improved the speed of payments to affected depositors.
According to him, the BVN system allows the Corporation to trace alternative bank accounts of customers and process reimbursements within days of a bank’s closure, eliminating the delays previously associated with manual claims.
For depositors with balances above the insured limits, Oludare reassured that recovery efforts remain ongoing through liquidation processes.
“This is a continuous process,” he stated. “Additional dividend payments are made in tranches as more funds are recovered. We have demonstrated this successfully with the liquidation of Union Homes, Aso Savings and Loans, and the more recent Heritage Bank Limited, where multiple tranches of dividends have already been disbursed.”
He also cautioned Nigerians against falling victim to fraudulent financial schemes, popularly known as “wonder banks”, urging them to verify the credibility of financial institutions before investing.
On his part, Nnanyelugo Onyemelukwe, president of the Enugu Chamber of Commerce, Industry, Mines and Agriculture (ECCIMA), described the Corporation as a dependable safeguard for depositors.
According to him, the NDIC remains “a beacon of hope for depositors”, providing a “great confidence backup” in situations where banks fail due to mismanagement or distress.
Onyemelukwe also called for stronger regulatory oversight by the Central Bank of Nigeria (CBN) to further reduce the risk of bank failures and sustain public trust in the financial system.
Central Bank of Nigeria (CBN) has officially restricted banking services for “chronic defaulters” and large-ticket obligors with non-performing loans.
In a sweeping move to enforce credit discipline and safeguard the nation’s financial system, the apex bank issued a policy statement on Wednesday following remarks by Olayemi Cardoso, governor, CBN, at the 4th Annual IMF/AFRITAC West 2 High-Level Executive Forum in Abuja.
The Governor made it clear that the era of regulatory forbearance for delinquent borrowers is over.
He emphasised that the bank is shifting toward a more aggressive stance on corporate governance to ensure that the N4.61tn in new capital recently attracted by the banking sector is protected from systemic abuse.
“Our stance on corporate governance is unequivocal: zero tolerance for violations. By ending years of regulatory forbearance, we have reinforced accountability, tightened supervision, and elevated compliance standards across the sector,” the Governor stated.
The new directive specifically targets “large-ticket obligors”, individuals or entities with significant outstanding debts classified as non-performing in the Credit Risk Management System. Under the new rules, these defaulters will be barred from accessing not only fresh credit but also essential contingent liabilities and trade instruments.
“We have implemented a restriction of banking services to non-performing large-ticket obligors. This decisive step underscores our commitment to credit discipline, financial integrity, and accountability,” the statement read.
According to the CBN, the move is designed to instil a “culture of repayment” that has historically been lacking among high-profile borrowers. By cutting off access to instruments such as letters of credit and performance bonds, the regulator aims to prevent “credit jumping”, a practice where defaulters migrate between banks to accumulate more debt.
“By curbing access to banking services for chronic defaulters, we are reinforcing the culture of repayment, protecting depositors, and safeguarding the stability of the financial system,” the apex bank added.
Beyond the crackdown on debtors, Cardoso reaffirmed that the CBN remains firmly committed to orthodox monetary policy. This approach prioritises price stability and the use of traditional tools to anchor inflation expectations, moving away from unconventional interventions to restore confidence in the naira.
“The CBN remains firmly anchored in orthodox monetary policy, focused on restoring price stability, strengthening policy credibility, and anchoring expectations through discipline and consistency,” the statement concluded.
For years, the Nigerian banking sector has struggled with “chronic defaulters”, wealthy individuals or massive corporations that borrow billions and fail to repay.
These are often referred to as “large-ticket obligors”. When these loans go bad, they threaten the liquidity of banks and the safety of ordinary citizens’ deposits.
Under the leadership of Cardoso, the CBN is pivoting toward “Orthodox Monetary Policy”. This means moving away from the era of massive development interventions and direct lending to sectors like agriculture and focusing instead on its core mandate: price stability and financial system regulation.
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