Nigerian banks race to meet April deadline under tougher capital stress rules

NIGERIA’S banking industry is entering a more demanding phase of regulation, as lenders work to meet an April 30 deadline set by the Central Bank of Nigeria (CBN) for the submission of Board-approved Risk-Based Capital (RBC) stress test reports. The requirement marks a shift in supervisory focus following the recent recapitalisation exercise.

The directive, issued on March 6, 2026, compels banks to evaluate how their capital would perform under adverse credit conditions. Lenders are expected to outline their testing approach, demonstrate compliance with regulatory standards, and show the potential impact on capital levels. This signals a transition from simply meeting capital thresholds to proving resilience under stress.

In a joint statement by Director of Banking Supervision, Olubukola A. Akinwunmi, and Acting Director of Corporate Communications, Hakama Sidi Ali, the CBN said the policy is designed to protect the gains achieved through recapitalisation. The regulator noted that banks must now carry out routine stress tests across defined scenarios and maintain sufficient capital buffers within an enhanced risk-based framework.

The apex bank also noted that ongoing reviews of prudential guidelines and supervisory practices will underpin the framework, strengthening governance standards, risk management systems, and overall sector stability.

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The new approach builds on the Banks and Other Financial Institutions Act (BOFIA) 2020 and expands the 2019 stress testing guidelines. It broadens scrutiny to cover both on- and off-balance sheet credit exposures, ensuring a more comprehensive assessment of risks.

While the recapitalisation exercise concluded on March 31 focused on meeting minimum capital requirements, analysts argue that the RBC framework goes further by examining the strength of that capital. According to DataPro, the stress test serves as a critical filter, warning that strong capital levels alone do not guarantee stability if asset quality is weak.

The framework simulates a 12-month deterioration scenario, assessing whether banks can absorb potential losses without breaching minimum capital adequacy ratios (CARS). This helps determine if newly raised capital can withstand realistic default conditions.

The CBN disclosed that 33 banks have met the revised capital thresholds, while a few others remain subject to regulatory and legal processes. Despite this, all banks are still operational, and the sector maintains capital adequacy ratios above global Basel standards, set at a minimum of 10 percent for regional and national banks, and 15 percent for those with international licences.

According to the regulator, the recapitalisation programme, alongside the gradual withdrawal of regulatory forbearance, has improved asset quality, increased transparency in balance sheets, and strengthened financial system stability.

However, the stress testing process may reveal new capital deficiencies. DataPro emphasised that meeting recapitalisation targets ensures only baseline capital levels, not full resilience. The RBC framework, it said, measures how well that capital can absorb losses under realistic stress conditions.

Where gaps are identified, banks will be required to raise additional capital beyond the initial thresholds. This will be guided by the ‘Higher of 50/100’ rule, which mandates that lenders cover either the full shortfall identified internally or at least half of the deficit calculated by the CBN, whichever is higher.

Banks will be given up to 18 months to address any identified shortfalls. Institutions that fall below requirements will face stricter supervision, including a follow-up stress test after six months, while compliant banks will undergo testing annually.

Industry sources indicate that implementation is already underway. The framework also introduces protective measures for high-risk sectors. Banks are now required to maintain a minimum provisioning level of 10 percent for vulnerable industries such as manufacturing and agriculture, helping to cushion against economic shocks like exchange rate volatility and commodity price fluctuations.

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DataPro further stressed that bank boards must prioritise asset quality and corporate governance to avoid triggering additional capital requirements after the stress tests, highlighting the growing importance of internal risk controls.

This stricter regulatory posture aligns with Nigeria’s broader economic goals. Authorities are positioning the banking sector to support large-scale infrastructure and industrial financing, requiring stronger, shock-resistant balance sheets as the country targets a $1 trillion economy by 2030.

With the RBC framework taking effect from April 1, regulators have made their stance clear: raising capital is no longer sufficient; but banks must now demonstrate that their capital can endure stress.