Banks’ N1.96Trn Black Gap: Who Took the Loans, Who Defaulted, and Why the Actual Economic system Suffers

By BLAISE UDUNZE

Nigeria’s banking sector has entered a season of reckoning. Eight of the nation’s greatest banks have collectively booked N1.96 trillion in impairment costs in simply the primary 9 months of 2025 which represents a staggering 49 p.c enhance from the N1.32 trillion recorded in the identical interval of 2024.

Behind these figures lies a deeper query that speaks to the very soul of Nigerian finance on who acquired these loans which have now turned bitter? Have been they the small and medium enterprises (SMEs), entrepreneurs, and job creators that gasoline actual financial progress, or have been they politically related insiders and company giants whose failures at the moment are being quietly written off on the expense of the general public belief?

The Central Bank of Nigeria (CBN) is unwinding its pandemic-era forbearance regime, a coverage that allowed banks to restructure non-performing loans and delay recognizing potential losses. It was a aid measure meant to guard the economic system throughout the COVID-19 shock. However because the CBN begins to part out this regulatory cushion, the hidden weaknesses in lots of banks’ steadiness sheets at the moment are coming to gentle.

The apex financial institution has since positioned a number of lenders beneath shut supervisory engagement, proscribing them from paying dividends, issuing government bonuses, or increasing offshore operations till they meet prudential requirements. People who have happy the situations are being progressively transitioned out forward of the complete forbearance unwind scheduled for March 2026. This shift, although painful, is forcing banks to confront the true state of their mortgage books and the image rising is something however flattering.

A assessment of monetary statements of Nigeria’s high listed banks reveals the distribution of impairment costs as of the third quarter of 2025.

–       Zenith Bank Plc leads the pack with an eye-popping N781.5 billion in impairments, a 63.6 p.c bounce from N477.8 billion in 2024. Most of this quantity to about N711 billion which occurred within the second quarter of 2025, pushed by losses on foreign-currency loans and the tip of regulatory forbearance. The financial institution’s gross loans declined by 9 p.c to N10 trillion, and although its non-performing mortgage (NPL) ratio improved to three p.c, that was largely because of large write-offs.

–       Ecobank Transnational Included (ETI) adopted carefully, provisioning N393.7 billion, up 47 p.c year-on-year. Inflation, exchange-rate volatility, and macroeconomic stress in Nigeria and Ghana all contributed to loan-quality deterioration. Its complete mortgage ebook stands at N21.1 trillion, with a modestly improved NPL ratio of 5.3 p.c.

–       Entry Holdings Plc posted impairments of N350 billion, representing a 141.5 p.c surge year-on-year. About N255 billion of this got here from loans to company entities and organizations, whereas the remainder have been loans to people. The financial institution cited altering macroeconomic situations, inflationary pressures, and continued regulatory changes as the primary culprits.

–       First HoldCo reported N288.9 billion, up 68.6 p.c from N171.4 billion a yr earlier. The financial institution attributed the spike to revaluation losses and write-downs of legacy exposures within the vitality and commerce sectors. Notably, about N100 billions of this was incurred within the third quarter alone.

–       United Financial institution for Africa (UBA) noticed a dramatic enchancment, slicing impairments from N123.5 billion to 56.9 billion, because of recoveries of N50.4 billion. The financial institution’s proactive loan-book administration and collateral recoveries have been credited for this efficiency.

–       Guaranty Trust Holding Firm (GTCO) posted N69.8 billion, up barely from N63.6 billion final yr. The group wrote off a key oil-and-gas publicity however maintained sturdy profitability, with pre-tax return on fairness (ROAE) of 39.5 p.c.

–       Stanbic IBTC Holdings Plc recorded N11.6 billion, a pointy 80 p.c decline year-on-year following recoveries of N16.3 billion on beforehand impaired loans.

–       Wema Bank Plc, with N11 billion in impairments, reported one of many lowest provisioning ranges within the trade, regardless of 30 p.c mortgage progress.

Altogether, these eight banks have put aside virtually N2trillion in provisions to cowl potential losses, a sum roughly equal to Nigeria’s total federal capital expenditure for 2025.

There have been current claims of a modest degree of mortgage progress that isn’t commensurate with the general enlargement of the banking system’s steadiness sheet. Information from MoneyCentral reveals that the mixed complete loans of the 9 banks stood at N65.37 trillion as of September 2025, representing a 7.42 p.c enhance from N60.86 trillion in 2024. This contrasts sharply with a 52.63 p.c surge in mixed loans recorded within the 2024 monetary yr and a 32.64 p.c enhance in 2023, in line with information gathered by MoneyCentral.

The underlying query, due to this fact, is which sectors of the economic system are literally benefiting from this reported mortgage progress?

The true puzzle behind these numbers is who really acquired these loans that at the moment are being impaired. Whereas banks have lengthy positioned themselves as engines of private-sector progress, proof means that a lot of their lending goes to a slim base of company debtors, politically related elites, and oil-and-gas firms. These sectors provide large-ticket offers and fast curiosity earnings but in addition carry monumental threat.

In distinction, the SME sector, which employs greater than 80 p.c of Nigeria’s workforce, continues to face credit score hunger. Many small companies are pressured to depend on costly casual loans or private financial savings as a result of banks deem them too dangerous. The sample is evident that banks chase security and short-term income over inclusive progress. When their massive company bets fail, they write them off by way of impairment costs, however the cumulative impact is that actual financial exercise suffers whereas the credit score system grows extra fragile.

One other dimension to the issue is the banking trade’s heavy funding in authorities securities. Over the previous two years, Nigerian banks have channeled N20.4 trillion into treasury payments, bonds, and different fixed-income devices, reaping risk-free returns reasonably than funding productive ventures. This “securities lure” is worthwhile for banks however disastrous for the economic system. As an alternative of financing factories, farmers, or tech innovators, banks earn straightforward cash by lending to authorities thereby crowding out non-public funding and weakening the transmission of credit score to the true sector. When rates of interest rise or forex values swing, the market worth of those securities falls, forcing banks to file mark-to-market losses that translate into impairment costs. Thus, the identical security internet that shields banks from mortgage threat finally ends up creating monetary volatility of its personal.

Past macroeconomic challenges, Nigeria’s banks are additionally grappling with homegrown issues like insider abuses, weak company governance, and ineffective threat administration. Previous crises within the banking sector, from the 2009 consolidation fallout to the 2016 oil-sector shock, reveal a constant sample: administrators and senior executives typically have outsized affect over mortgage approvals, generally extending credit score to themselves or politically uncovered entities with out correct collateral or due diligence. These insider-related loans continuously flip poisonous, hidden beneath layers of restructuring and accounting manoeuvres till a regulatory audit forces publicity.

The current impairments could properly replicate a brand new cycle of those historic sins as loans prolonged beneath strain, affect, or misplaced optimism, now coming dwelling to roost because the CBN tightens oversight. Company-governance codes exist, however enforcement stays uneven. Some banks proceed to function “relationship banking,” have been loyalty trumps prudence. The shortage of whistleblower safety, mixed with weak internal-audit independence, additional compounds the issue. Till boards and regulators impose actual penalties for reckless lending, the system will proceed rewarding the improper behaviour and punishing taxpayers and shareholders in the long term.

At its coronary heart, impairment is a measure of how properly banks anticipate and handle threat. An increase in impairments indicators that too many loans have been made with out correctly assessing the borrower’s capability to repay, or that threat fashions failed to regulate to altering macroeconomic situations. A number of banks blamed their losses on exchange-rate volatility and inflation, however these are hardly new dangers in Nigeria’s financial atmosphere. The truth that impairments ballooned at the same time as income remained excessive means that risk-management frameworks have been reactive reasonably than preventive which targeted on compliance reasonably than foresight. In some circumstances, the sheer scale of provisioning, reminiscent of Zenith’s N781 billion or Entry’s N350 billion, factors to systemic underestimation of credit score threat.

Each naira written off as an impairment represents not only a failed mortgage however a misplaced alternative for the true economic system. N1.96 trillion might have funded tens of hundreds of latest small companies, hundreds of thousands of jobs, and important infrastructure initiatives. As an alternative, these funds are trapped within the closed circuit of banking losses or vanish into opaque company failures. This has broader implications: as banks take up losses, they tighten lending standards, making it tougher for real debtors to entry loans. Excessive impairments sign instability, discouraging international traders and depositors, whereas credit score circulate dries up, productiveness and job creation undergo. The result’s a paradoxical economic system the place banks submit spectacular income but the productive sector languishes.

If there’s a silver lining, it’s that some banks, notably UBA, Stanbic IBTC, and Wema Bank are demonstrating improved loan-recovery methods, extra disciplined credit score fashions, and a stronger give attention to risk-weighted belongings. Their experiences show that impairment just isn’t inevitable; it’s the final result of selections like governance, tradition, and accountability. For others, the present spherical of provisioning ought to function a wake-up name to rethink their enterprise fashions, diversify exposures, and strengthen compliance tradition.

To its credit score, the CBN’s forbearance unwind is a crucial step towards transparency. By compelling banks to acknowledge their true mortgage losses and proscribing dividend payouts till they meet prudential requirements, the regulator is forcing a long-overdue cleaning of the system. Nonetheless, reform should go deeper than technical compliance. The CBN should implement public disclosure of insider-related loans, tighten penalties for concealment, and promote lending to productive sectors by way of focused incentives. As an example, a tiered capital framework might reward banks that reach the next proportion of credit score to SMEs and manufacturing, whereas imposing stricter capital costs on speculative or insider-related lending.

Nigeria’s banking sector has proven resilience by way of crises, from the worldwide monetary meltdown to oil-price collapses. However resilience shouldn’t turn into an excuse for complacency. The N1.96 trillion impairment costs of 2025 are greater than a balance-sheet adjustment; they’re a mirror reflecting structural flaws in lending tradition, governance, and the alignment between finance and improvement. To rebuild belief and relevance, banks should reorient lending towards real-sector progress, spend money on credit score analytics and threat intelligence that anticipate shocks, implement transparency in board-level mortgage approvals and insider exposures, and collaborate with regulators to design sustainable credit score frameworks for SMEs. Above all, there should be an ethical recalibration of banking function from chasing short-term income to fueling long-term nationwide prosperity.

The spike in impairment costs doesn’t imply Nigeria’s banks are collapsing. Relatively, it indicators an trade confronting its hidden fragilities. Because the forbearance curtain lifts, the system has an opportunity to reset to scrub up dangerous money owed, rebuild credibility, and reconnect finance with improvement. However that chance might be wasted if the identical patterns persist: insider lending, governance lapses, and a choice for simple returns over actual funding. Till these points are confronted head-on, the query will proceed to echo by way of boardrooms and regulatory halls are Nigerian banks actually financing progress or merely recycling threat and defending privilege? Solely transparency, self-discipline, and a renewed sense of function can reply that query within the affirmative.

Blaise, a journalist and PR skilled writes from Lagos, will be reached through: blaise.udunze@gmail.com