Nigeria’s banks are racing against time to meet a fresh directive from the Central Bank of Nigeria, which has ordered lenders to submit detailed stress test reports on their capital strength before an April 30 deadline.
The move signals a tougher phase of regulatory scrutiny following the industry’s recent recapitalisation exercise, shifting attention from how much capital banks have to whether that capital can actually survive economic shocks.
In a directive issued in March, the apex bank instructed lenders to carry out Risk-Based Capital (RBC) stress tests – simulated scenarios designed to show how their balance sheets would perform under severe credit losses or financial turbulence.
The order was confirmed in a joint statement signed by Olubukola Akinwunmi, Director of Banking Supervision, and Hakama Sidi Ali, Acting Director of Corporate Communications at the Central Bank.
According to the regulator, the policy aims to protect the gains made during the recent banking recapitalisation exercise and ensure lenders maintain strong capital buffers capable of absorbing potential shocks.
The framework builds on the Banks and Other Financial Institutions Act (BOFIA) 2020 and expands earlier stress-testing guidelines introduced in 2019. It requires banks to evaluate both on-balance sheet and off-balance sheet credit exposures under simulated adverse conditions.
Industry analysts say the directive goes beyond simply raising capital levels. Instead, it focuses on the quality and resilience of that capital.
Research firm, DataPro, described the stress test as a critical filter for the recapitalisation programme, noting that large paid-up capital alone does not guarantee stability if banks’ underlying assets weaken.
The Central Bank said 33 banks have already met the revised minimum capital requirements, while a few others are still undergoing regulatory or legal processes. For now, the sector continues to operate above global Basel Committee on Banking Supervision capital standards.
However, the upcoming stress tests could reveal fresh funding gaps. If a bank’s capital proves insufficient under simulated pressure, it may be required to raise additional funds beyond the recapitalisation thresholds.
Under what analysts call the “Higher of 50/100” rule, affected banks must cover either the full capital shortfall identified in their internal stress tests or at least half of the deficit calculated by the Central Bank.
Institutions found to have capital gaps will be given up to 18 months to correct them and will face closer regulatory monitoring. Those that pass the tests will remain on an annual stress-testing cycle.
Experts say the stricter oversight reflects Nigeria’s broader ambition to build a stronger banking sector capable of financing large-scale infrastructure and industrial projects as the country targets a $1 trillion economy by 2030.
With the new framework already taking effect, the message from regulators is unmistakable: raising capital is no longer enough – banks must now prove they can withstand financial shocks.
