The Central Bank of Nigeria (CBN) has said Nigerian banks may be required to raise additional capital following the outcome of a new stress testing exercise designed to assess the resilience of their credit portfolios to economic shocks.
The apex bank stated this in a letter directing all banks to conduct a stress test effective from April 1, 2026.
According to the bank, lenders that record a capital shortfall after the stress test would be required to raise fresh capital to bridge the gap within an 18-month period.
This comes at a time when the banks are rounding off their recapitalization exercise with just weeks to the March 31 deadline set by the CBN.
What the CBN is saying
According to the CBN, the stress testing framework is aimed at estimating the potential impact of adverse economic conditions on banks’ Non-Performing Loans (NPLs), loan loss provisions, and Capital Adequacy Ratio (CAR).
The apex bank said all lenders are required to submit the results of their Board reports on or before the close of business April 30, 2026.
- “Following the conclusion of stress testing, banks are expected to report: Pre-Stress CAR, Post-Stress CAR, and Capital Shortfall (if any).
- “It is pertinent capital to note that banks shall be required to raise 100% of their reported stressed capital shortfall or 50% of the shortfall computed from CBN stress analysis of the banks (whichever is higher), within an 18-month period,” the CBN said
- “Once communicated, this level of capital shall become the risk-based capital requirement of the bank until the next cycle of stress testing, which would take place 6 months after the end of the capital raise to close the shortfall in stressed CAR,” it added.
More insights
CBN said the exercise will consider risks such as a fall in commodity prices, foreign exchange volatility, supply chain disruptions, declining demand in key sectors, and governance-related risks.
- The regulator said the stress test is intended to estimate the potential impact of these shocks on banks’ Non-Performing Loans (NPLs), loan loss provisions, and Capital Adequacy Ratio (CAR).
- As part of the framework, banks are required to apply the stress test to all credit exposures, including on-balance sheet and off-balance sheet exposures, as well as loans linked to directors and insiders.
- The CBN said insider-related exposures should be treated under a severe stress scenario and assumed to be in default, requiring full provisioning in the banks’ stress calculations.
Under the stress scenario, banks must simulate a gradual deterioration of credit exposures within a 12-month period, with loans migrating through the risk classification stages of performing, watchlist, substandard, doubtful, and lost, in line with the Prudential Guidelines.
What you should know
Earlier this month, the CBN disclosed that 30 banks have already met the new minimum capital thresholds introduced under its ongoing banking sector recapitalisation programme.
According to the apex bank, the recapitalisation drive, which began in 2024, is progressing across the industry as financial institutions strengthen their capital bases through various fundraising strategies.
The regulator noted that lenders have approached the capital market and other funding channels to meet the revised requirements introduced under the policy.
