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Introduction
On March 12, 2026, the Central Bank of Nigeria issued a directive barring commercial banks from providing new loans and specific banking services to “large-ticket obligors” who have defaulted on their existing loan obligations.1 This policy is designed to curb credit abuse, protect the stability of the financial system from high-value non-performing loans and prevent such persons from accessing additional facilities in the banking system.
The directive represents a decisive regulatory intervention and signals a shift toward stricter enforcement of credit discipline and implementing stability within Nigeria’s financial system.
Scope and Definition of Large-Ticket Obligors
The directive specifically targets “large-ticket obligors,” defined as individuals or companies whose total debt across the banking system exceeds the Single Obligor Limit (SOL) or whose default poses a systemic risk to a bank’s capital.
The Single Obligor Limit is a regulatory cap designed to prevent concentration risk by ensuring that a bank does not engage in lending above a prescribed proportion of its capital to a single borrower or entity. This safeguard is fundamental to maintaining financial stability and minimizing exposure to large-scale defaults.
Under the Banks and Other Financial Institutions Act 2020, this limit is strictly enforced to protect depositors and maintain the solvency of financial institutions.2
Accordingly, a borrower is classified as a “large-ticket obligor” where their total exposure is at least 10% of the bank’s shareholders’ funds.3 This classification captures borrowers whose financial distress could significantly impair a bank’s balance sheet.
Further, the CBN Prudential Guidelines 20104 provide specific thresholds for lending exposure:
- For commercial banks: 20% of shareholders’ funds unimpaired by losses
- For Microfinance banks:
- 1% for individual borrowers
- 5% for group borrowers relative to shareholders’ funds.
Restrictions Imposed by the Directive
The restriction on new credit provides that borrowers flagged with a non-performing loan (NPL) in the Credit Risk Management System (CRMS) or by licensed private credit bureaus are immediately rendered ineligible for new credit facilities.5
Beyond direct lending, affected defaulters are barred from accessing contingent liabilities and trade finance instruments, including:
- Letters of credit
- Performance bonds
- Advance payment guarantees
- Bankers’ confirmations
The implication of this restriction is far-reaching. Major companies currently in default may find it nearly impossible to conduct international trade, secure government contracts, or maintain operational liquidity.
In addition, banks have been directed to strengthen their risk management frameworks by demanding additional realizable collateral from defaulting borrowers to secure existing exposures.6 This requirement ensures that existing credit risks are better mitigated while discouraging strategic defaults.
The Drive Behind the Policy
The primary driver for this restriction is the deteriorating asset quality within Nigeria’s banking sector. Following years of regulatory forbearance introduced during the COVID-19 pandemic which allowed banks to restructure loans without classifying them as non-performing, the CBN has now withdrawn these concessions.7
This policy shift has led to several developments:
- Crystallization of Bad Loans
Previously restructured or masked loans have now surfaced as non-performing loans, revealing the true extent of credit risk within the system.8
- Rising Non-Performing Loan Ratio
The industry’s NPL ratio has risen to an estimated 7%, exceeding the regulatory safety threshold of 5%.9
- Pressure on Capital Adequacy Ratio (CAR)
Defaults by large-ticket obligors pose a direct threat to banks’ Capital Adequacy Ratio, a key regulatory metric that measures a bank’s capital relative to its risk-weighted assets.10 CAR serves as a financial cushion, ensuring that banks can absorb losses without becoming insolvent, thereby protecting depositors and maintaining systemic stability.
The Role of the Credit Risk Management System (CRMS)
The policy also reinforces the critical role of the Credit Risk Management System.
The governing framework mandates that all financial institutions render returns to the CRMS in respect of customers with aggregate outstanding debit balances of ₦1,000,000 and above.11 Institutions are also required to:
- Update credit information monthly
- Conduct status enquiries on prospective borrowers
- Ensure accurate and timely reporting
Banks that fail to comply with these requirements are subject to regulatory penalties and in accordance with the provisions of the Banks and Other Financial Institutions Act(BOFIA).12
Presently, the CRMS is web-enabled, allowing financial institutions and stakeholders to access the database directly for reporting and credit checks. By tracking borrowers through their Bank Verification Numbers (BVN), the system ensures that a default in one bank triggers immediate “red flags” across all others.
Furthermore, the CBN is in the process of integrating the CRMS with other banking systems to enhance efficiency, transparency, and real-time monitoring of credit exposures.
Enforcement Measures and Systemic Implications
In a further escalation of enforcement, the Central Bank of Nigeria has ordered all financial institutions to immediately freeze the accounts of identified defaulters.13 This move is intended to instill credit discipline and protect the banking sector from systemic risks posed by large-scale defaults.
Consequently, any borrower flagged within the CRMS framework is effectively rendered a persona non grata within the credit market. By restricting access to essential banking facilities, the CBN is leveraging financial exclusion as a tool to compel delinquent borrowers to regularize their obligations.
This enforcement mechanism underscores a broader regulatory philosophy: access to financial services is contingent upon responsible credit behavior.
Continuation of Prior Regulatory Measures
This latest clampdown reinforces an earlier circular issued in June 2024.14 While the previous directive primarily focused on restricting access to new loans, the current policy significantly expands the scope of sanctions.
By extending restrictions to trade finance instruments such as advance payment guarantees and letters of credit, the CBN has effectively constrained the operational capacity of habitual defaulters. This represents a more punitive and comprehensive approach to credit enforcement.
Conclusion
The Central Bank of Nigeria’s 2026 directive marks a critical turning point in the regulation of credit risk within the Nigerian banking sector. By targeting large-ticket obligors and imposing sweeping restrictions on defaulters, the policy seeks to restore discipline, improve asset quality, and safeguard financial stability.
While the immediate effects may include reduced access to credit and operational challenges for defaulting entities, the long-term objective is clear: a more resilient, transparent, and accountable financial system.
Footnotes
1. Central Bank of Nigeria, Circular on Restriction of Credit Facilities to Loan Defaulters (12 March 2026).
2. Banks and Other Financial Institutions Act 2020, s 20.
3. ibid.
4. CBN Prudential Guidelines 2010, Part B.
5. Credit Risk Management System Framework Guidelines.
6. Central Bank of Nigeria (n 1).
7. Central Bank of Nigeria, Regulatory Forbearance Guidelines on COVID-19 (2020).
8. ibid.
9. Central Bank of Nigeria, Financial Stability Report (2025).
10. Basel Committee on Banking Supervision, Basel III Framework.
11. Banks and Other Financial Institutions Act 2020, s 27.
12. ibid.
13. Central Bank of Nigeria (n 1).
14. Central Bank of Nigeria, Circular on Credit Restrictions (June 2024).
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