The Nigerian banking sector is facing its most severe stability test in over a decade as a $2 billion (approximately N2.9 trillion) distressed loan from indigenous energy giant Nestoil Limited has forced a historic balance sheet reset across the industry, with the Central Bank of Nigeria prohibiting affected banks from paying dividends for the 2025 financial year until they fully provision for non-performing loans, resulting in a combined N2.16 trillion impairment charge across five major lenders and the suspension of dividend payouts that millions of shareholders had expected.
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According to nairametrics, the latest banks confirmed to have been hit by the Nestoil bad debt crisis are United Bank for Africa and Access Holdings, both of which did not declare dividends in their 2025 full-year financials, joining FirstHoldCo, FCMB Group, and Ecobank Group in what analysts describe as CBN Governor Olayemi Cardoso’s “Big Bang” provisioning approach, a deliberate strategy to force banks to absorb the full impact of their oil sector exposure now rather than spreading losses over multiple years through incremental provisioning.
Banking sector non-performing loans have neared the 7 per cent level in 2025, approaching the threshold at which systemic stability is threatened, as the combination of Nestoil’s inability to service syndicated loans, volatile global oil prices, and the CBN’s refusal to allow forbearance creates conditions that experts warn could prove difficult for some lenders to navigate.
The Nestoil Crisis
At the centre of the banking sector’s pain is Nestoil Limited, a large-scale indigenous oil and gas operator whose inability to service syndicated loans has triggered the cascade of impairment charges and dividend suspensions across the industry.
The loans were facilitated during periods of higher oil production expectations, when banks extended credit based on projected revenues from Nigeria’s oil sector. When those expectations failed to materialise, Nestoil found itself unable to meet its obligations, transforming performing loans into non-performing assets on the balance sheets of every bank with exposure.
Available data show that Nigerian banks’ total exposure to the oil and gas sector at the end of 2024 was N21 trillion, a staggering figure that underscores the systemic risk that concentration in a single volatile sector poses to the financial system.
The major banks exposed to Nestoil include UBA, First Bank of Nigeria, Access Bank, FCMB Group, Union Bank, Ecobank, and the African Export-Import Bank (Afreximbank).
Cardoso’s “No Mercy” Approach
Under CBN Governor Cardoso, the regulatory response has been described as “orthodox,” “stringent,” and “no mercy,” a marked departure from the forbearance policies of previous administrations that allowed banks to defer recognition of bad loans and continue paying dividends even when their loan books were deteriorating.
The CBN has prohibited affected banks from paying dividends for the 2025 financial year until they fully provision for their non-performing loans, meaning banks must absorb the full estimated loss from the Nestoil exposure before distributing profits to shareholders.
The regulator has also required that NPLs fall below 5 per cent before dividend payments can resume, a threshold that several affected banks are currently above.
The approach has already resulted in N2.16 trillion in impairment charges across five tier-one and tier-two lenders, according to their 2025 financial statements, charges that have directly reduced net income and made dividend payments mathematically impossible even if the CBN had not imposed a formal prohibition.
Bank-By-Bank Impact
FirstHoldCo Plc (First Bank)
FirstHoldCo, the parent company of First Bank of Nigeria, was disproportionately exposed to delinquent loans within the troubled oil and gas sector.
In 2025, FirstHoldCo took a N748 billion impairment charge on its loan book, the largest single-bank provision in the current crisis. The charge was described as “a direct response to the CBN’s demand that banks stop hiding bad loans under the guise of forbearance.”
Financial analysts noted that by taking the hit now, FirstHoldCo “avoided the death by a thousand cuts that comes from multi-year incremental provisioning.” However, the bank would likely not pay a dividend for 2025.
Ecobank Group
Ecobank Group recorded massive net impairment losses on loans of N707.52 billion in its 2025 full-year audited results. The figure was so significant that its auditors flagged it as a key audit matter, meaning the auditors considered the loan loss provisions to be among the most important issues affecting the financial statements and requiring particular attention in their audit report.
United Bank for Africa (UBA)
UBA’s audited full-year 2025 results revealed a N331 billion loan loss provision. Group Profit Before Tax came in at N423.4 billion, down 47 per cent from N803.7 billion in 2024, a decline driven almost entirely by the impairment charges.
UBA is not paying a dividend for the full year 2025.
The impact on UBA comes at a politically sensitive moment, with the bank’s Group Chairman Tony Elumelu already in the news over the false divorce claims that led to three arrests. The combination of no dividend payout and the defamation controversy creates a challenging period for the bank’s public relations and investor relations teams.
Access Holdings
Access Holdings Plc saw its bad-loan impairments more than double in full year 2025, with the charge for impairment on loans and advances to customers jumping 209 per cent to N287.3 billion. Total comprehensive income plunged 58 per cent, and the group skipped its dividend payout.
FCMB Group
FCMB Group adopted what was described as “a defensive stance” on its balance sheet in 2025, allowing its loan book to contract marginally as the bank grappled with a sharp rise in credit defaults.
Net impairment losses on loans doubled to N92.5 billion from N43.7 billion the previous year. FCMB has not announced a dividend for the 2025 full year.
The retreat in lending alongside rising impairments suggests FCMB is both absorbing losses from existing exposures and deliberately reducing new lending to limit further risk.
Beyond provisioning for bad loans on their balance sheets, the affected banks are actively pursuing recovery of the debts owed to them by Nestoil.
Lenders secured a Mareva injunction in October 2025, freezing Nestoil’s assets across more than 20 institutions. The frozen assets include bank funds, properties, and oil cargoes, representing the full range of Nestoil’s commercial interests.
Receivership efforts have continued despite legal pushback from Nestoil, which has contested the freezing orders and the appointment of receivers over its assets.
Banks are now moving to seize real estate, movable assets, and oil cargoes belonging to Nestoil. However, experts warn that this asset recovery process may lead to prolonged legal disputes that “lock up vital capital, thereby threatening industry liquidity.”
The tension between the banks’ need to recover the debts and Nestoil’s legal resistance creates a situation where significant banking capital could remain tied up in litigation for months or years, further straining the liquidity of banks that have already absorbed massive impairment charges and forfeited dividend income.
Systemic Risks
Financial experts are warning that the recovery may be elusive and that systemic risks are mounting.
Banking sector NPLs neared the 7 per cent level in 2025, approaching the internationally recognised danger threshold. The CBN’s own guidelines set a 5 per cent NPL ratio as the maximum acceptable level for a healthy banking system. At 7 per cent, the sector is nearly 40 per cent above the regulatory threshold.
If oil loan woes persist, whether through continued difficulties at Nestoil, additional defaults by other oil and gas borrowers, or a sustained decline in global oil prices, the NPL ratio could deteriorate further, threatening the stability of individual institutions and potentially the system as a whole.
The N21 trillion total banking sector exposure to oil and gas at the end of 2024 represents a concentration risk that regulators and risk managers have long warned about. Nigeria’s economy remains heavily dependent on oil, and the banking sector’s exposure to the same sector creates a correlation between oil market conditions and financial system stability that amplifies rather than diversifies risk.
The suspension of dividends across five major banks affects millions of Nigerian shareholders, institutional investors, pension funds, and individual retail investors who rely on bank dividends as a significant source of investment income.
Nigerian bank stocks have historically been among the most popular investments for retail shareholders, partly because of their reliable dividend payments. The simultaneous suspension of dividends across multiple major banks represents a significant disruption to this expectation and could affect investor confidence in the banking sector.
For pension funds, which hold significant positions in bank stocks on behalf of Nigerian workers, the dividend suspension means reduced returns on assets under management, potentially affecting the income available to retirees and future pensioners.
For institutional investors, including foreign portfolio investors, the dividend suspension signals increased risk in the Nigerian banking sector, potentially affecting capital flows and stock valuations.
Despite the pain inflicted on shareholders, financial analysts argue that Cardoso’s approach is strategically sound and may prevent a worse outcome.
“While the dividend suspension is painful for investors, Cardoso’s Big Bang provisioning is necessary to prevent a 2009-style banking collapse,” analysts stated.
The reference to 2009 recalls the Nigerian banking crisis of that year, when the CBN under Governor Sanusi Lamido Sanusi (now Emir of Kano) intervened in several banks after discovering massive non-performing loans that had been hidden through forbearance, creative accounting, and regulatory negligence. The crisis resulted in the nationalisation of several banks, the prosecution of bank executives, and a loss of public confidence that took years to rebuild.
By forcing banks to take the full impairment hit now, the CBN is ensuring that the N21 trillion total exposure to the oil sector is “accurately reflected, rather than hidden under forbearance.” The approach is painful in the short term but prevents the accumulation of hidden losses that could trigger a sudden systemic crisis if they were discovered all at once.
The Recapitalisation Cushion
The oil-related stress on the banking sector is arriving amid the conclusion of the banking recapitalisation exercise, which the CBN mandated to strengthen the capital base of Nigerian banks.
Banks that have just raised new capital through the recapitalisation exercise are in a stronger position to absorb the write-offs from their oil sector exposure. The fresh capital provides a cushion that allows banks to take the impairment charges without falling below minimum capital adequacy ratios.
In this sense, the timing, while painful, may be fortuitous. If the Nestoil crisis had emerged before the recapitalisation exercise, some banks might not have had sufficient capital to absorb the losses without threatening their viability. The additional capital raised through recapitalisation provides the financial buffer needed to survive the current provisioning cycle.
The path to recovery for the affected banks depends on several factors.
The outcome of the Nestoil asset recovery process will determine how much of the provisioned amounts can be reversed if assets are successfully seized and liquidated. If the banks recover a significant portion of the frozen assets, some of the impairment charges could be written back, improving future earnings and potentially enabling the resumption of dividends.
Global oil prices will influence whether the broader oil and gas loan portfolio remains stressed or begins to recover. Higher oil prices would improve the debt-servicing capacity of oil sector borrowers, potentially reducing the flow of new NPLs.
The CBN’s regulatory posture will determine when banks are permitted to resume dividend payments. The 5 per cent NPL threshold must be achieved before dividends can flow again, creating a clear metric for banks to target.
For Nigerian shareholders waiting for their dividends, for bank stocks that have been under pressure, and for a financial system that is absorbing losses of a magnitude not seen since the 2009 crisis, the message from the CBN under Cardoso is clear: the reckoning has arrived, the losses must be recognised, and the sector must be rebuilt on honest books rather than hidden risks.
As analysts noted: the pain is real, but the alternative, a 2009-style collapse born of concealed losses, would be far worse.
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