CBN Banks’ Forbearance Restrictions Blink the Nigerian Market

…the Nigerian market blinks week after

A week after the Central Bank of Nigeria (CBN) issued a Circular to banks on the resolution of regulatory forbearance on their single obligor limit (SOL) infractions and other loan assets while it suspended bank payments of dividends, bonuses, and foreign expansion, the stock market took an early tumble before a speedy market reversal. The initial fallout of the CBN circular was a temporary slump in bank share prices which tore analysts’ expectations to shred as capital market operators (CMOs) with a ‘buy’ bias were wrong-footed. Those on the ‘sell side’ had broad grins on their faces but only for a brief two days as the prices of the affected banks quickly recovered by Tuesday, June 17, 2025, as banks made statements concerning the resolution of their forbearance issues with the CBN by the end of June 2025 (see illustration 1 below).

In an earlier report after the CBN Circular was released on Friday, June 13, 2025, Proshare expressed concerns over the market implications of the Circular. The report observed that the suspension of the payment of dividends on bank equity at a time of banking sector recapitalization could send the wrong signals to present and prospective investors.

It was, therefore, not surprising that by Monday, June 16, 2025, the market took a noticeable hit as the banking Sector Index (BSI) slid by 3.98%, Nevertheless, the market’s overall year-to-date (YTD) return remained one of the global market’s highest at 12.15% ahead of an emerging market like Argentina. Indeed, banks like Access Bank, Zenith Bank, UBA, GTCO, First Holdco, FCMB, and Fidelity Bank saw price cuts. According to a senior C-suite bank executive who requested anonymity ‘the CBN’s weekend Circular jolted the banks, not necessarily because of the call for a resolution of forbearance on bank credits, but because the banks knew that the restrictions on dividend payouts would scare investors, it was like a punch to the recapitalization gut’

Read: CBN’s Temporary Suspension of Bank Dividends and Bonus Circular – Matters Arising

The June 13, 2025, CBN Circular

To make matters worse, a report by Messrs. Renaissance Capital (Rencap) for June 2025 laid bare the list of commercial bank lenders with a CBN forbearance challenge and by how much they were in the hole. This spooked the market further and large sell orders were ignited as investors dashed for the door by offloading their bank equity holdings on Monday and Tuesday, this was just before FCMB in a detailed Press Release explained its forbearance situation and assured that the matter would be resolved before the end of June 2025. The FCMB release encouraged other banks to issue similar press statements to calm investors’ concerns. Each of the releases assured investors that banks’ 2025 dividend payments would be unaffected by the CBN Circular.

A Cooling Off Period

Towards the end of the week, the market saw a bullish reversal as anxiety cooled off. The notable fall in the prices of NGX-listed banks between Friday, June 13, 2025, and Monday, June 16, 2025, was reversed by midweek as the banks released statements concerning their forbearance cure plans (see Table 1 and chart 1 below).

Bank Women and Corporate Governance

On June 17, 2025, FCMB released a detailed Press Statement that noted that the bank had N207.6bn loans under CBN forbearance as of May 31, 2025. The bank noted that this was down from N538.8bn as of September 30, 2024, the loans are currently classified as stage 2 loans. It also observed that its single obligor limit (SOL) would be brought within permissible regulatory limits by September 30, 2025.

In addition, the bank had concluded arrangements to reclassify N23.1bn of convertible debt into equity under approved regulatory guidance. Access Bank also released a statement to stakeholders that it was taking action to ensure an early exit from its CBN forbearance arrangement and assured investors that it still planned to pay dividends by the financial year ended (FYE) December 31, 2025. Zenith Bank and First Holdings issued similar statements to set a timeline for cleaning up their CBN forbearance obligations and tidying up their SOL positions.

Of interest to some analysts is that the earliest banks to respond to the CBN’s Circular were banks run by women. In some sense, this underscores an earlier report by Proshare in its last CEO Remuneration report that there is a context in which corporate governance is stronger under female-led institutions compared to those run by their male counterparts. The jury is still out on this. However, within the context of the recent CBN Circular, women-led banks had prepared public responses to the Circular by the CBN from the first working day of the following week, thereby reducing the anxiety of shareholders and sell-off responses after the first two working days that the regulator announced the temporary deferment of dividend and bonus payments (both GTCO and Stanbic Bank appear to have made the necessary forbearance corrections between year-end 2024 and Q1 2025).

Analysts have noted that if there was a gambit to make information about banks’ forbearance public by detailing each bank’s vulnerability, it worked like a charm, as all affected banks are currently working towards exiting their regulatory forbearance positions between June and August 2025.

Closing Thoughts

The CBN’s forbearance Circular had originally appeared ill-advised at a time of banks’ recapitalization. However, on further assessment and considering the short-term market response, the move may have been smart, even if officious. Some of the benefits of the CBN’s action include:

Getting banks to suggest a programme for the resolution of their forbearance liabilities.
Giving shareholders a clearer picture of their banks’ hitherto undisclosed CBN forbearance obligations.
Preventing significant bank investors from using dividend payments to fund further equity acquisitions in their banks (a bank Holdco Chairman recently announced that his investment in the Holdco would rise to over N320bn without borrowing, suggesting there has been no borrowing against future Holdco dividends as collateral).
Stopping bank managements from rewarding themselves with bonuses while leaving forbearance challenges to linger.
Improving the equity market’s pricing of banks. Banks already are priced below their book value with most banks showing price-to-book values (P/BV) below one. This challenge has been highlighted in an earlier report by Proshare (Nigerian Banks: Solving the Price-to-Book Value Puzzle)

Adjusting bank books for CBN forbearance may have short-term downside consequences for earnings and pricing, but the benefits of healthier sector-wide balance sheets, guarantee investors with earnings and dividends based on ‘cleaner;’ books, and better pricing opportunities in 2026. As the earlier quoted senior bank executive observes, ‘banks will become genuinely stronger, resilient, and competitive by taking advantage of lower operating risk thresholds. The present CBN-induced pain will, hopefully, give way to sizable near-term operational gain’, he said.