Banks show stronger outlook after major loan clean-up
Enforcement of prudential guidelines on full provision for non-performing oil and legacy loans has strengthened the balance sheets of banks. The Central Bank of Nigeria (CBN) had directed banks with
Enforcement of prudential guidelines on full provision for non-performing oil and legacy loans has strengthened the balance sheets of banks.
The Central Bank of Nigeria (CBN) had directed banks with exposures to make full provisions for such loans.
The deliberate clean-up order by the apex bank on full provisioning for legacy oil and gas exposures before affected banks could resume dividend payment, stopped three of Nigeria’s largest banks not to declare dividends for the 2025 financial year.
Despite pooling substantial net profit in a resilient year highlighted by successful recapitalisation, the trio of United Bank for Africa (UBA) Plc, Access Holdings Plc and First Holdco, could not declare dividends for the 2025 financial year.
For the first time in many decades, the rare decision to overlook payouts expectedly rattled shareholders who have come to depend on the regular dividends from the banks.
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But finance and investment experts said the CBN directive to the banks was in the best interest of shareholders and the financial system.
Analysts were unanimous that the short-term shareholder pain of pause in dividend payout would turn into bigger returns in the period ahead as banks prioritise solvency, liquidity, and depositor protection, a more sustainable foundation for long-term dividend capacity.
They pointed out that the CBN’s approach prioritises capital retention and balance sheet clarity, with banks recognising large impairment charges now and pursuing recoveries through court-backed asset freezes and receivership actions.
Specific banks are showing discipline.
UBA made a N331 billion loan-loss provisions and Access Holdings increased impairment charges by 209 per cent to N287.3 billion, actions that demonstrated active risk clean-up and capital protection.
Recovery actions have been heightened. In one instance, lenders had secured a Mareva injunction in October last year to freeze Nestoil-related assets, including funds, properties, cargoes, across more than 20 institutions. Receivership and seizure efforts are ongoing.
This points to structured recovery steps to claw back value, which could boost profit and distributable earnings in the period ahead.
Managing Director, AIICO Capital, Dr. Femi Ademola, said it was the ideal for the banks to make provisions for non-performing loans that had lingered beyond certain period, in line with the prudential guidelines.
He said: “Investors are the owners of the banks; hence they take the risks. The present situation is momentary and it is to further strengthen the banks in the future.
“I will not be bothered about the current set-back in dividend payment if it helps to improve capital gains.” Managing Director, GTI Capital, Mr. Kehinde Hassan said CBN’s insistence on full provisioning for legacy oil and gas loans reflected a deliberate push to restore transparency in a sector long burdened by restructured and disputed exposures.
According to the chartered financial analyst, by compelling banks to recognise these losses upfront, the regulator aims to strengthen balance sheets and eliminate hidden vulnerabilities that have lingered beneath the surface for years.
“In the immediate term, the directive will weigh on profitability as heavy impairment charges suppress earnings, place pressure on dividend payouts, and keep share prices sensitive as investors reassess near term returns.
“Yet, the longer term implications are more beneficial. Full provisioning clears out legacy risks, leaves banks better capitalised and more resilient, and enhances credibility by ensuring that reported asset quality reflects economic reality rather than optimistic restructuring cycles.
“Although the policy introduces short term discomfort, it opens a medium term window of opportunity. Banking stocks may trade below intrinsic value during the provisioning cycle, creating attractive entry points for investors with patience and a longer horizon.
“Tier 1 institutions, supported by stronger buffers and diversified earnings, remain particularly well positioned to rebound once the clean up phase ends,” Hassan, a Fellow of Chartered Institute of Stockbrokers (CIS) and Institute of Chartered Accountants of Nigeria (ICAN), said.
Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said the clean-up exercise was important prudential regulatory issue to ensure the stability of the banking system, health of the banks, and more importantly financial system stability.
He said: “Without such adequate provisioning, you could have financial statements that do not reflect the true states of affairs of the banks.
“So, I think it is important for the integrity of financial reporting, it is important for the credibility of financial statements, it is important so that the shareholders can also know the true states of affairs of the banks.
“Such a step may also create an environment that will ensure that there is proper oversight of the bank by the relevant committees of shareholders. So, it is good for the health of the banks and health of the financial system, because it enhances the credibility of financial reports”.
Managing Director, HighCap Securities, Mr. David Adonri said the banks and their shareholders would benefit from the clean-up exercise, describing the apex bank’s stance as “very commendable”.
“Full provisioning for doubtful debt is a sound financial management practice for every enterprise and an accounting convention which fairly defines the financial health of an enterprise.
“This is even more compelling for banks because of their extraordinary risk concentration status. The return to full provisioning will reduce paper profit as much as possible and guide investors in their investment decisions,” Adonri said.
Managing Director, Globalview Capital Limited, Mr. Aruna Kebira, said the clean-up would have positive effects on returns and investors’ confidence in the banking sector.
He noted that beyond the temporary discomfiture, the enforcement of stricter prudential guidelines has helped to correct the abnormalities in the financial system.
Analysts said investors have shown considerable understanding and preference for long-term stability of the sector, citing the resilience of banking stocks.
The banking sector index at the Nigerian Exchange (NGX) closed April 2026 with a year-to-date return of 50.50 per cent, within the range of the market’s general average return of 55.69 per cent. Banks that had not declared dividends continued to trade on the positive, with Access Bank and First Bank posting a four-month capital gain of 28.57 per cent and 34.97 per cent respectively.
The first quarter 2026 results already showed that the three affected banks witnessed considerable growth in revenue streams.
This indicated that the worst might have passed for these banks as they’ve recognized the bad loans and are better positioned to declare handsome dividends in 2026. For instance, UBA’s gross earnings rose to N801.46 billion within the three-month period with net profit at N146.6 billion.
Access Holdings recorded net profit of N216.54 billion in first quarter 2026, as against N182.75 billion in corresponding first quarter 2025.
Analysts said recapitalisation has made banks stronger and able to absorb shocks, thus the banks are not only robust enough to absorb shocks; they are more empowered to grow their business and deliver higher dividends to investors.
Another advantage of the successful completion of the recapitalisation drive is that Nigerian banks are now getting increased attention from international financial institutions.
At the recent state visit of President Bola Ahmed Tinubu to United Kingdom, the CBN Governor had showcased the country’s top banks before leading lenders such as JP Morgan. For the first time in a long time, the conversation was around collaboration and not loans.
With this step, transparency on sector concentration risk is improving. The loan clean-up put context around the size of the Nigerian banking industry’s oil-and-gas exposure with some estimates citing about N21 trillion by the end of 2024.
