The Central Bank of Nigeria (CBN) has terminated its COVID-19 regulatory forbearance, which previously allowed commercial banks to restructure credit facilities without classifying them as non-performing.

This policy reversal has triggered a sharp rise in the banking sector's Non-Performing Loan (NPL) ratio, pushing it past the apex bank's strict 5.0% regulatory limit.

During the pandemic, the CBN introduced the forbearance to cushion the impact of global economic disruptions on local businesses. This allowed financial institutions to grant temporary moratoriums and extend loan tenures for struggling borrowers without penalizing their asset quality metrics.

With the formal expiration of this grace period, banks are now legally required to reflect the true state of their loan portfolios. Consequently, a significant volume of restructured loans has been reclassified as substandard, directly impacting bank balance sheets.

Financial analysts warn that the sudden spike in NPLs will lead to higher impairment charges, which could severely drag down bank earnings in the upcoming financial quarters. Banks are now expected to aggressively ramp up debt recovery efforts and tighten their credit risk frameworks to mitigate the regulatory fallout.