Investment bank, Renaissance Capital Africa, has revealed that six Nigerian banks hold about $3.52bn in forbearance loans.
In a new report by Renaissance Capital titled ‘Nigerian Banks: Cash is King,’ the investment firm indicated that the banks would be impacted by the Central Bank of Nigeria’s directive that lenders under the regulatory forbearance suspend dividend payments to improve their capital base.
According to the Corporate Finance Institute, forbearance refers to the temporary relief granted to financial institutions, allowing them to delay the full recognition of loan losses or to restructure troubled loans without immediately classifying them as non-performing.
This regulatory tool employed by the central banks allows banks and financial institutions to maintain operations despite falling below required capital thresholds.
In a circular signed by its Director of Banking Supervision, Olubukola Akinwunmi, on Friday, the CBN directed banks operating under regulatory forbearance to suspend dividend payments, defer bonuses for executives, and halt investments in foreign subsidiaries or offshore ventures.
The CBN said the move, which was part of its ongoing efforts to strengthen the resilience and stability of the Nigerian banking sector, has reviewed the capital positions and provisioning adequacy of banks currently operating under approved regulatory forbearance regimes, specifically with credit exposures and Single Obligor Limits.
The statement read, “In view of the need to strengthen capital buffers, enhance balance resilience and promote prudent internal capital retention during this transitional period, the CBN hereby directs that all banks currently benefiting from credit or SOL forbearance shall suspend the payment of dividends to shareholders, defer the payment of bonuses to directors and senior management staff, and refrain from making investments in foreign subsidiaries or new offshore ventures.
“This temporary suspension is until such a time as the regulatory forbearance is fully exited and the banks’ capital adequacy and provisioning levels are independently verified to be fully compliant with prevailing standards.”
In its report, Renaissance Capital, which expressed support for the CBN’s move, said that based on its estimates, Zenith Bank, First Bank, and Access Bank have significant forbearance exposures of 23 per cent, 14 per cent, and four per cent, respectively, of their gross loan books.
“Similarly, in line with our estimates, Fidelity Bank and FCMB, the two top tier-II banks, have forbearance exposures of 10 per cent and 8 per cent of their gross loan books, respectively. In contrast, Stanbic IBTC and GTCO have zero per cent forbearance exposure in their gross loans, based on our estimates. GTCO adequately provisioned and wrote off its forbearance exposures last year,” the report added.
In absolute terms, Renaissance Capital said, “We estimate regulatory forbearance exposures at $304m, $887m, $134m, $296m, $282m, and $1.6bn for AccessCorp, FirstHoldCo, FCMB Group, Fidelity Bank, United Bank for Africa and Zenith Bank Plc, respectively.”
It added that its estimates for Fidelity Bank, FCMB, Access Corp, GTCO and UBA were based on recent engagements with management. However, its Zenith Bank estimates are based on its last engagement with management in December 2024.
“While forbearance exposures are not always tied to a single client, we believe they are predominantly concentrated in loans to a major Oil & Gas counterparty (particularly in the upstream and refinery subsectors). Following our engagement with FCMB, we note that the Group remains compliant with its SOL, as its largest forbearance loan to a single client stands at $68.1m, below its SOL threshold of $94m,” the report indicated.
Meanwhile, the stock market on Monday experienced a panic sell-off of banking stocks in response to the CBN directive. Despite the sell-off, market watchers indicate this may mean an entry opportunity for discerning investors.
