CBN Tightens Post-recapitalisation Stress Tests as Banks Begin Compliance

Following the completion of the banking sector recapitalisation exercise, the Central Bank of Nigeria has commenced a stricter phase of regulatory oversight, directing banks to comply with a strengthened risk-based capital framework anchored on stress testing.

The apex bank had set April 30, 2026 as deadline for deposit money banks to submit board-approved Risk-Based Capital (RBC) stress test reports, a move seen as shifting regulatory focus from capital raising to capital resilience.

The directive, issued in March, requires banks to assess the strength of their capital under adverse credit scenarios, including potential deterioration in loan books, while outlining the implications for capital adequacy and risk exposure.

Director of Banking Supervision at the CBN, Olubukola Akinwunmi in a statement jointly signed by the Acting Director, Corporate Communications, Hakama Sidi-Ali, said the new framework was introduced to consolidate gains from the recapitalisation exercise and ensure banks remain resilient to macroeconomic and sector-specific shocks.

According to the statement, the regulator has reinforced its risk-based capital adequacy framework, mandating banks to conduct periodic stress tests under defined scenarios and maintain sufficient capital buffers to absorb potential losses.

Akinwunmi, had further explained in a TV interview that the framework requires banks to evaluate how shocks affecting households, businesses and other borrowers could impact loan repayments and, by extension, their capital positions.

The directive, he added, is designed to ensure that banks proactively manage their capital adequacy by identifying potential shortfalls early and taking necessary steps, including raising fresh capital where required.

The framework is supported by provisions of the Banks and Other Financial Institutions Act 2020 and includes periodic reviews of prudential guidelines to strengthen governance, risk management and overall sector stability.

Industry analysts said the development signals a transition to risk-based capital regulation, where the quality and loss-absorption capacity of capital is prioritised over mere size. According to DataPro, the stress testing exercise serves as a critical filter for the recapitalisation programme, assessing whether banks can withstand realistic shocks without breaching minimum capital adequacy ratios.

The firm noted that the framework evaluates the ability of banks’ capital to absorb losses arising from weakening asset quality, warning that strong capital levels alone may not guarantee financial stability. It added that the tests simulate adverse conditions over a defined period to determine capital gaps and guide regulatory actions where vulnerabilities are identified.

Where deficiencies are observed, banks would be required to shore up their capital positions within a specified timeframe, reinforcing the need for prudent balance sheet management. Checks within the industry indicate that compliance is already underway, with most banks finalising their stress test reports ahead of the regulatory deadline.

Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, confirmed that many lenders have commenced the process, describing the exercise as a proactive approach to risk management. He said banks are expected to model worst-case scenarios across sectors, including declines in profitability and rising non-performing loans, to determine the adequacy of their capital buffers.

Olubunmi added that while the recapitalisation exercise has strengthened capital bases, it does not eliminate the need for future capital injections, particularly as competition and scale become more critical in the banking sector.

He noted that the focus of banks is now shifting towards efficient deployment of capital to generate sustainable returns, rather than merely raising funds.