The Central Bank of Nigeria (CBN), has introduced a new regulatory directive aimed at strengthening credit discipline in Nigeria’s banking sector. Under the policy, borrowers who default on large loans will be denied access to additional credit facilities and certain banking services.
The directive forms part of the apex bank’s broader effort to reduce non-performing loans (NPLs), and protect the stability of the financial system.
The circular was issued to all deposit money banks and other financial institutions, mandating strict enforcement of restrictions against borrowers whose loans have been classified as non-performing.
Background of the Directive
Nigeria’s banking industry has been grappling with rising non-performing loans in recent years. Non-performing loans occur when borrowers fail to meet repayment obligations for an extended period, typically 90 days or more.
According to the CBN, the banking sector’s NPL ratio recently exceeded the regulatory benchmark of 5 percent, reaching around 7 percent in 2025. This increase raised concerns about financial stability and prompted the central bank to introduce stricter lending and compliance measures.
The new policy is designed to prevent borrowers with outstanding debts from accumulating additional liabilities that could further strain banks and the financial system.
Key Provisions of the New CBN Rule
1. Restriction on Access to New Credit
Under the directive, borrowers with loans classified as non-performing will no longer be eligible for additional credit facilities from any bank.
This restriction applies to borrowers whose loans are recorded in:
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The Credit Risk Management System (CRMS), maintained by the CBN
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Any licensed private credit bureau in Nigeria
Banks must verify a borrower’s credit status through these platforms before granting new loans.
2. Ban on Certain Banking Services
Beyond traditional loans, the CBN also extended the restriction to several banking services that expose banks to financial risk.
These include:
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Letters of credit
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Bankers’ confirmations
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Performance bonds
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Advance payment guarantees
These financial instruments are commonly used in trade and business transactions. Preventing loan defaulters from accessing them reduces potential exposure to additional credit risks.
3. Focus on “Large-Ticket Obligors”
The directive specifically targets borrowers categorised as large-ticket obligors.
A large-ticket obligor refers to an individual or company whose loan exposure across banks is substantial enough to:
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Exceed the Single Obligor Limit (SOL), or
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Significantly affect a bank’s Capital Adequacy Ratio (CAR).
Such borrowers pose a higher systemic risk because their default could significantly impact the financial stability of lending institutions.
4. Requirement for Additional Collateral
The CBN has also instructed banks to obtain additional realisable collateral from borrowers whose existing loans remain unsettled.
This requirement is intended to:
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Improve loan security
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Reduce potential losses for banks
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Ensure better risk management in lending activities.
Objectives of the Policy
The CBN outlined several reasons for implementing the directive:
Strengthening Financial System Stability
Large loan defaults can weaken banks’ capital positions and reduce their ability to lend to productive sectors of the economy. Restricting defaulters helps protect financial institutions from further exposure.
Promoting Responsible Borrowing
The policy is intended to discourage reckless borrowing and encourage borrowers to repay existing loans before seeking new ones.
Improving Credit Discipline
By linking credit eligibility to verified loan performance data, the CBN aims to foster a culture of responsible credit use across Nigeria’s financial system.
Protecting Depositors’ Funds
Banks use depositors’ funds to provide loans. By reducing default risks, the regulator seeks to safeguard customer deposits and maintain trust in the banking system.
Relationship with Existing Credit Monitoring Systems
The directive builds on the CBN’s existing credit monitoring framework, particularly the Credit Risk Management System (CRMS).
The CRMS tracks loan performance across all banks in the country, enabling lenders to identify borrowers with outstanding or defaulted obligations before granting new loans.
This centralised credit reporting mechanism allows banks to share information and prevent habitual defaulters from moving between institutions to obtain fresh loans.
Potential Impact on Borrowers and Businesses
1. Increased Accountability for Borrowers
Borrowers will face stricter consequences for defaulting on loans. Companies and individuals with large unpaid debts may struggle to secure financing until they clear their obligations.
2. Reduced Access to Trade Financing
Businesses relying on instruments such as letters of credit and performance bonds may face operational challenges if they have unresolved loan defaults.
3. Improved Lending Standards
Banks are expected to adopt stricter credit appraisal processes, including thorough background checks and risk assessments before approving loans.
4. Lower Risk in the Banking Sector
The measure could help reduce the level of non-performing loans and strengthen financial system resilience.
Enforcement and Compliance
The CBN has warned that banks that fail to comply with the directive may face regulatory sanctions under the banking laws and supervisory guidelines governing financial institutions in Nigeria.
This enforcement mechanism ensures that all banks uniformly apply the restriction across the industry.
Conclusion
The Central Bank’s decision to bar loan defaulters from accessing new credit facilities and certain banking services represents a significant tightening of lending regulations in the country. By targeting large-ticket borrowers with non-performing loans, the apex bank aims to curb rising bad debts, enhance credit discipline, and strengthen the stability of Nigeria’s banking sector.
While the directive may create short-term challenges for indebted borrowers, it is expected to improve the overall health of the financial system by encouraging responsible borrowing and more prudent lending practices.
