CBN Raises Capital Requirements For High-risk Banks, Tightens Lending Rules

The Central Bank of Nigeria (CBN) has moved to strengthen the banking sector’s resilience by requiring banks with higher risk exposures to maintain larger capital buffers and by tightening enforcement of insider lending restrictions and other prudential rules.

The measures are part of a risk-based capital requirement framework introduced through guidelines issued in March 2026, designed to ensure that banks maintain adequate capital in line with the nature, scale, complexity and risk profile of their operations.

The framework marks a shift from the traditional approach of relying largely on industry-wide minimum capital adequacy thresholds to a system in which individual banks’ risk exposures determine the capital adequacy ratio (CAR) they must maintain.

CBN said the approach would help prevent a recurrence of the financial distress that necessitated the recent banking sector recapitalisation, while ensuring that lenders have sufficient buffers to absorb potential losses and sustain their operations during periods of economic and financial stress.

Speaking on the reforms, the CBN Director of Banking Supervision, Dr Olubukola Akinnwunmi, said the policy was designed to ensure that banks remain resilient after recapitalisation by aligning their capital requirements with the risks they undertake.

“It is not just about maintaining a minimum capital requirement. It is about maintaining a capital requirement that speaks to the level of risk exposure or risk-taking that a bank has decided to embark on based on its business model,” he said.

Under the framework, banks with significant concentration risks, foreign exchange exposures, governance weaknesses or complex business activities are expected to maintain higher capital buffers than lenders with lower risk profiles.

The regulator will also deploy forward-looking stress tests to assess banks’ capacity to withstand potential losses arising from deteriorating loan quality, sector-specific shocks, macroeconomic disruptions and governance-related risks.

The assessments will cover on-balance-sheet and off-balance-sheet credit exposures over a 12-month horizon, taking into account factors such as exposure at default, credit classification, provisions, collateral values and risk-weighted assets.

Akinnwunmi said the objective was to make capital requirements more responsive to banks’ actual risk exposures and strengthen their ability to withstand adverse economic conditions.

The CBN’s tougher supervisory approach also targets insider lending, which has remained a major concern for the regulator due to its potential to undermine corporate governance and expose depositors’ funds to excessive risk.

Akinnwunmi disclosed that some bank owners, shareholders and board members had exited the industry amid stricter enforcement of insider credit rules introduced in February 2025.

He warned that directors could lose their positions if insider lending persisted, stressing that weak corporate governance could threaten the stability of individual banks and the wider financial system.

“If there is poor corporate governance, if insider credit pervades the industry, in a short time, we will all live to see a repeat of the problem that we have battled or we have dealt with through recapitalisation,” he said.

The banking supervision director also said the CBN had ended previous forbearances related to single-obligor limits, which restrict the amount banks can lend to individual borrowers or groups of connected borrowers.

He explained that the regulator was enforcing existing prudential rules more strictly to prevent excessive lending to particular borrowers from exposing banks to significant losses.

The CBN is also enforcing restrictions on banks’ investments in offshore subsidiaries, limiting such investments to 10 per cent of shareholders’ funds under the applicable provisions of the Banks and Other Financial Institutions Act.

Clarifying that the restriction was not a new policy but an existing requirement that had not always been strictly enforced, Akinwunmi said the renewed enforcement was necessary to prevent excessive offshore investments from exposing Nigerian banks to avoidable risks.

Beyond capital requirements and lending restrictions, the CBN is strengthening its supervisory processes through a digital platform known as the Supervisory Examination Application.

The platform is designed to improve the transparency and efficiency of bank examinations by enabling examiners to conduct examinations remotely, receive information securely from banks and maintain an auditable record of supervisory decisions.

According to Akinnwunmi, the application also has artificial intelligence-enabled capabilities that capture the knowledge and experience of senior examiners, making it available to younger supervisors and supporting data-driven assessments.

He added that the regulator was placing greater emphasis on corrective supervisory actions, requiring banks to implement recommendations promptly to address identified weaknesses.

The measures complement the banking sector recapitalisation programme announced in March 2024, which raised minimum capital requirements according to banks’ licence categories.

While recapitalisation was intended to strengthen banks’ capacity to absorb losses and support economic activities, the new risk-based framework seeks to ensure that the capital maintained by each institution remains adequate for the risks it assumes.

The CBN’s approach therefore places greater responsibility on banks to manage their lending practices, governance structures and investment exposures, as the regulator intensifies efforts to safeguard financial stability and prevent a recurrence of the problems that necessitated the recapitalisation exercise.