Recently, the Central Bank of Nigeria (CBN) has been addressing regulatory forbearance measures which was introduced during the COVID-19 pandemic to support the banking sector. The CBN is now phasing out these measures to strengthen financial stability and resilience.
In this article, we're going to walk you through everything you need to know about Forbearance, the relationship between Forbearance and Loan, the phasing out processes of Forbearance in Nigeria sector, and the impact on banks after the it's completely phased out.
Forbearance Definition and Meaning
Forbearance is defined as a temporary agreement between a lender and a borrower where the lender allows the borrower to pause, reduce, or modify loan payments due to financial hardship. It means the borrower must eventually repay the owed amount, with the adjusted terms.
It provides financial relief without forgiving the actual debt (outstanding loan). The loan itself remains the same; forbearance is just a relief measure applied to it. So, calling it a "Forbearance Loan" is a term people used informally.
In a wiser scope, forbearance is like extending loan repayment or leniency. For instance, a bank tolerating delayed payments to help a struggling customer. It’s a supportive measure to avoid default, which actually helps in preserving the borrower’s credit and the lender’s long-term recovery prospects.
What is CBN Forbearance?
The CBN Forbearance is a regulatory relief measure launched during the COVID-19 pandemic to allows commercial banks to temporarily delay classifying restructured or distressed loans as non-performing loans (NPLs).
According to CBN and international banking standards, a Non-Performing Loan (NPL) is a loan where the borrower has failed to make scheduled payments of principal or interest for a specified period.
Meanwhile, it's important to note that the Forbearance are not introduced because the commercial banks are defaulting loans, it's launched to support the banking sector during the COVID-19 when there was financial hardship in the country.
 |
| Yemi Cardoso CBN Governor |
The NPL definition is just to give you clue of what Non-performing loan is all about. So, with that being cleared, the CBN Forbearance permitted banks to grant borrowers leniency, such as payment pauses or loan restructuring, without making it bad debts on their books.
The CBN Forbearance measure is aimed to support economic stability by preventing a surge in NPLs and maintaining bank liquidity. Now, the apex bank is actively phasing out these measures to enforce stricter financial standards.
The apex bank has been gradually withdrawing forbearance policies. The gradual withdrawal is called "Phasing Out Forbearance." The phase-out is being implemented sector by sector, with the power sector expected to exit first, followed by agriculture, and oil and gas last due to its high concentration of forbearance loans.
Phasing Out Forbearance
The CBN issued a directive, on June 13, 2025, prohibiting banks under forbearance from paying dividends, awarding executive bonuses, or making new offshore investments. This applies to banks with credit exposures or breaches of Single Obligor Limits (SOL).
Credit exposures or breaches of Single Obligor Limits (SOL) is a situations where a bank’s total loans or financial commitments to a single borrower or group of related borrowers exceed the regulatory limit set by CBN.
This limit is usually set at 20% of the bank’s shareholders’ funds, which is the money invested by the bank’s owners plus retained profits. For example, if a bank has ₦100 billion in shareholders’ funds, it can lend no more than ₦20 billion to a single borrower.
The breaches of Single Obligor Limits (SOL) rule prevents commercial banks from risking too much money on one borrower, as overexposure to one borrower could jeopardize the bank’s financial stability if the borrower defaults.
However, the CBN's restrictions will remain until affected banks fully exit forbearance and meet capital adequacy and provisioning standards. Meanwhile, CBN says an external, impartial third party—such as an auditor or regulatory examiner—must confirm that affected banks have fully complied with the conditions for exiting forbearance before the restriction is lifted.
In response to the CBN's Forbearance Directive, many Nigerian banks have announced plans to exit forbearance by June 30, 2025. Fidelity Bank plans to exit forbearance by addressing exposures to two obligors under SOL and four credit facilities. The bank says it'll provide performing status by June 2025.
FCMB Group cut its forbearance loans from ₦538.8 billion to ₦207.6 billion by May 31, 2025. The bank says after it exit the CBN forbearance, it expects a short-term rise in bad loans (NPLs) to 11.5% of its total loans, but predicts this will drop below 10% by the end of 2025 as its loan portfolio continues to grow.
Impact of Forbearance Phase Out
The phase-out process began in response to improved economic conditions and aims to align with stricter prudential standards. However, seven major Nigerian banks—Access Bank Holdings, FBN Holdings, FCMB Group, Fidelity, GTCO, UBA, and Zenith—have lent over $4 billion in Forbearance loans to borrowers.
Large portion of these Forbearance Loans went to companies in the oil and gas sector, which is risky because this industry can be unstable due to fluctuating oil prices and operational challenges. This is the main reason the phasing out process is implemented to oil and gas sector.
Furthermore, Oil and Gas sectors have high concentration of forbearance loans, implementing the phase out process to them last will eventually buy them more time to settle all their outstanding loans with banks.
However, the phase-out may lead to increased NPLs, as explained by FCNB Group. It may also lead to provisioning requirements that can squeeze profits and limit dividend payments for some banks until 2028. However, most banks are reportedly well-positioned to absorb these shocks due to existing risk buffers.
