An International rating agency, Moody’s Ratings, warns that Nigerian banks may be carrying hidden loan risks from COVID-19-era forbearance granted by the Central Bank.
As recapitalisation deadlines approach, concerns grow over the true quality of these loan portfolios amid ongoing economic challenges.
As Nigerian banks work to recover from COVID-19’s financial impacts, Moody’s Ratings warns of lingering risks tied to pandemic-era loans.
During COVID-19, the Central Bank of Nigeria (CBN) granted regulatory forbearance, allowing banks to manage economic shocks by adjusting loan exposures.
However, according to Moody’s, this leniency left banks with hidden risks, and the CBN has yet to announce when it will end these measures.
Additionally, the CBN has set a March 2026 recapitalisation deadline to stabilise the banking sector.
Moody’s suggests that the top five banks, controlling over 80% of industry assets, should meet this deadline by early 2025.
In contrast, smaller banks, especially those with international licences, may struggle to comply, possibly leading to sector consolidations.
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Moreover, Moody’s sees the recapitalisation as beneficial, enabling banks to absorb loan losses, increase lending, and adhere to Basel III standards.
Yet, concerns over loan quality remain.
Reported nonperforming loans (NPLs) stood at 3.9% in June 2024, down from 4.8% in April; however, Moody’s notes these figures may not fully reflect hidden exposures due to pandemic forbearance.
Furthermore, Moody’s highlights challenges from the naira’s devaluation and inflation, which have strained capital, leaving some banks near the CBN’s minimum capital adequacy ratio.
Overall, Moody’s report emphasises that while recapitalisation is promising, the sector faces significant ongoing risks.
