In the wake of the COVID-19 pandemic, many Nigerian banks were granted regulatory flexibility by the Central Bank of Nigeria (CBN) to help them navigate widespread economic disruption. This temporary relief, known as regulatory forbearance, allowed banks to restructure loans impacted by the crisis without having to classify them as non-performing. At the time, it was a necessary tool to preserve financial system stability and support struggling sectors such as oil & gas, power, and agriculture.

However, as economic conditions improve and the banking sector approaches a new phase of recapitalisation, the CBN is now shifting back toward stricter regulatory oversight. With this transition comes a renewed focus on credit ratings—an important measure of a bank’s financial health and its capacity to meet obligations. Ratings reflect a bank’s ability to meet its financial obligations, and any indication of hidden loan losses or capital weakness can trigger downgrades. This affects not only market confidence but also borrowing costs, investor interest, and international credibility.

What is Changing and Why It Matters

The CBN has announced that banks still operating under regulatory forbearance or those breaching the Single Obligor Limit (SOL) must suspend dividend payments, delay executive bonuses, and halt offshore investments until their financial positions are fully regularised. The SOL, which limits lending exposure to a single borrower, is designed to reduce concentration risk.

This change is more than a procedural adjustment. It signals a deliberate move to ensure that banks’ financial statements reflect the true quality of their loan books. By encouraging transparency and stronger risk management, the CBN is laying the groundwork for long-term sector resilience.

Impact on Credit Assessment

Forbearance helped cushion the effects of the pandemic, but it also temporarily obscured the real level of credit risk on banks’ balance sheets. With the phasing out of these measures, banks must now recognise deferred credit losses and ensure full provisioning. These steps can directly influence their capital adequacy ratios and, by extension, their internal and regulatory credit assessments.

Strengthening Credit Profiles in the Long Run

While the immediate impact may include profit adjustments and more cautious dividend policies, the long-term outlook remains constructive. The CBN’s policy encourages banks to strengthen their capital buffers, improve provisioning, and build a more resilient financial base, factors that ultimately contribute to healthier credit ratings.

As Nigeria’s banking system moves toward a 2026 recapitalisation deadline, the focus is shifting from short-term profitability to long-term stability. Stronger internal credit ratings, backed by clean balance sheets and prudent lending practices, are expected to play a central role in this transition.