The Central Bank of Nigeria (CBN) has indicated that 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.
In a directive to banks, the apex bank said the stress test will take effect from April 1, 2026, as part of efforts to strengthen risk management and financial stability in the banking sector.
According to the CBN, lenders that record a capital shortfall after the exercise will be required to raise fresh capital to bridge the gap within 18 months.
The move comes as banks are rounding off their ongoing recapitalisation exercise ahead of the March 31 deadline set by the regulator.
The CBN said the stress-testing framework is intended to estimate the potential impact of adverse economic conditions on banks’ Non-Performing Loans (NPLs), loan-loss provisions and Capital Adequacy Ratio (CAR).
Banks are required to submit the results of their board-approved stress test reports to the CBN on or before the close of business on 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),” the CBN stated.
The regulator added that banks must raise either 100 per cent of their reported stressed capital shortfall or 50 per cent of the shortfall determined by the CBN’s own stress analysis—whichever is higher—within 18 months.
It further explained that once the required capital level is communicated, it will become the bank’s risk-based capital requirement until the next stress-testing cycle, which will take place six months after the completion of the capital raise.
The CBN said the exercise will factor in potential risks such as a fall in commodity prices, foreign exchange volatility, supply-chain disruptions, declining demand in key sectors and governance-related challenges.
Under the framework, banks are required to apply the stress test to all credit exposures, including on-balance-sheet and off-balance-sheet facilities, as well as loans linked to directors and insiders.
The regulator noted that insider-related exposures must be treated under a severe stress scenario and assumed to be in default, requiring full provisioning in banks’ stress calculations.
Banks are also expected to simulate a gradual deterioration in credit exposures over 12 months, with loans migrating through the risk-classification stages of performing, watchlist, substandard, doubtful and lost, in line with existing prudential guidelines.
Earlier this month, the CBN disclosed that about 30 banks had already met the new minimum capital thresholds introduced under its ongoing banking sector recapitalisation programme.
The apex bank said the recapitalisation drive, launched in 2024, is progressing across the industry as financial institutions strengthen their capital bases through fundraising from capital markets and other funding channels.
