Strategies for Managing Non-Performing Loans in Nigeria

The Nigerian credit industry is facing significant challenges due to rising inflation, foreign exchange volatility, and a lingering debt burden from the post-pandemic period, leading to increased loan default rates. A loan is classified as non-performing when principal or interest remains unpaid for 90 days or more, with further classifications based on the duration of default.

The Central Bank of Nigeria (CBN) defines these categories and mandates banks to maintain provisions for bad debts. The Banks and Other Financial Institutions Act, 2020 (BOFIA 2020), reinforces regulatory obligations and allows the CBN to intervene in banks' operations.

Restructuring loans is a primary strategy for managing NPLs, which may involve extending loan tenors, granting moratoriums, or reducing interest rates. However, restructured loans must remain classified as non-performing until the borrower shows a consistent repayment history, ensuring that banks cannot manipulate their financial statements.