Nigeria’s banking sector is under fresh strain as a massive distressed loan linked to Nestoil Limited forces top lenders to suspend dividend payments and overhaul their balance sheets.
The crisis centres on an estimated $2 billion (about N2.9 trillion) exposure that has triggered sweeping loan loss provisions across the industry, hitting profitability and investor returns.
Major lenders including United Bank for Africa, Access Holdings and FirstHoldCo have all reported sharp spikes in impairment charges in their 2025 full-year results, with several opting not to declare dividends.
UBA booked N331 billion in loan loss provisions, with profit before tax dropping 47% year-on-year. Access Holdings saw impairment charges surge by 209% to N287.3 billion, while total comprehensive income plunged 58%, forcing it to skip payouts.
FirstHoldCo recorded one of the largest hits, taking a N748 billion impairment charge tied largely to oil and gas exposures. Similarly, Ecobank Group reported N707.5 billion in net impairment losses, while FCMB Group doubled its credit loss provisions to N92.5 billion and withheld dividends.
At the centre of the turmoil is Nestoil’s difficulty in servicing syndicated loans arranged during periods of optimistic oil production forecasts. The company’s repayment challenges have placed significant pressure on banks heavily exposed to Nigeria’s oil and gas sector.
Industry data show total banking sector exposure to oil and gas stood at N21 trillion by the end of 2024, underscoring the scale of the risk.
Regulatory pressure has intensified under Olayemi Cardoso, governor of the Central Bank of Nigeria, which has barred affected banks from paying dividends until they fully account for non-performing loans.
The directive has led to a combined N2.16 trillion in impairment charges across key lenders, directly eroding earnings and limiting capital distribution to shareholders.
Efforts to recover the debt are ongoing. Lenders secured a Mareva injunction in October 2025, freezing Nestoil’s assets—including bank accounts, properties and oil cargoes—across multiple institutions. However, legal disputes could prolong recovery and tie up liquidity within the system.
Analysts warn that non-performing loans in the sector approached 7% in 2025, above the regulator’s 5% threshold, raising concerns about broader financial stability if oil sector risks persist.
Despite the short-term pain for investors, the CBN’s aggressive stance is seen as a decisive move to strengthen bank balance sheets and avoid a repeat of past crises. By forcing early recognition of losses, regulators aim to ensure transparency and rebuild confidence in the system.
The ongoing banking recapitalisation drive is expected to provide a buffer, helping lenders absorb shocks as they navigate one of the sector’s most significant stress tests in recent years.
