Pressure is mounting on Nigeria’s banking sector following revelations that bad loans linked to Nestoil Limited have significantly contributed to dividend suspensions across major lenders, raising fresh concerns over asset quality and systemic stability.
Three banks are reportedly unable to declare dividends for the 2025 financial year after being hit by large impairment charges tied to non-performing loans in the oil and gas sector, with Nestoil’s outstanding indebtedness estimated at about N2.9 trillion across multiple financial institutions.
Brandspur Banking News Desk reports that the situation has intensified scrutiny on banks’ exposure to the energy sector, where total lending stood at approximately N21 trillion at the end of 2024. Major lenders including United Bank for Africa, Access Holdings, First HoldCo, FCMB Group, Union Bank, Ecobank, and Afreximbank are among those impacted by the unfolding credit stress.
The Central Bank of Nigeria, under Governor Olayemi Cardoso, has reportedly maintained a strict regulatory stance, directing affected banks to fully provision for non-performing loans before distributing dividends. This policy shift has already resulted in an estimated N2.16 trillion in impairment charges across five major lenders, including Access Holdings, UBA, Ecobank, First HoldCo, and FCMB.
The ripple effects of the credit crisis are already visible in financial statements. UBA recorded a loan loss provision of N331 billion for 2025, while Access Holdings saw its impairment charges on loans surge by 209 percent to N287.3 billion. Both institutions have consequently suspended dividend payments for the period under review.
First HoldCo, which owns First Bank of Nigeria, reported one of the largest sector-wide hits with an impairment charge of N748 billion, reflecting significant exposure to distressed oil and gas loans. Ecobank Group also posted net impairment losses exceeding N707 billion, further weighing on profitability and capital distribution plans.
FCMB Group, meanwhile, recorded a doubling of net impairment losses to N92.5 billion, prompting a more conservative balance sheet approach and contributing to its decision to withhold dividends for the financial year.
The crisis has been linked to syndicated loans extended to Nestoil during periods of optimistic oil production forecasts, which have since become unsustainable due to repayment challenges. Legal actions have followed, including a Mareva injunction freezing Nestoil’s assets across multiple financial institutions, as banks intensify recovery efforts.
Assets under dispute include bank deposits, properties, and oil cargoes, with receivership processes ongoing despite legal resistance from the borrower. Analysts warn that prolonged litigation could further strain liquidity within the banking system.
Industry observers note that the current wave of provisioning is part of a broader regulatory clean-up aimed at improving transparency in bank balance sheets. The Central Bank’s directive has effectively ended the use of forbearance as a tool for masking credit deterioration, forcing lenders to recognise losses upfront.
While painful for shareholders in the short term, financial analysts argue that the aggressive provisioning approach is necessary to strengthen long-term banking stability and prevent deeper structural risks within the sector.
However, concerns remain that rising non-performing loan ratios, which are approaching the 7 percent threshold, could pose additional challenges if exposure to the volatile oil and gas sector continues to deteriorate.
Despite the pressure, the banking sector is also undergoing recapitalisation efforts, which are expected to help absorb losses and improve resilience. Still, the Nestoil-related debt overhang continues to highlight the risks associated with concentrated lending to high-value energy projects in Nigeria’s financial system.
