Banks Bolster Capital as CBN Tightens Regulations

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Strengthening the Banking Sector for a Resilient Financial System

Nigeria’s banking system is undergoing significant transformation as it works to enhance its capital base and ensure long-term stability. The Central Bank of Nigeria (CBN) has been actively reinforcing governance, transparency, and risk management practices to build a more resilient financial system. This effort is part of a broader initiative to prepare the sector for future challenges and support the country's economic ambitions.

Key Challenges and Strategic Responses

Despite the current stability of the banking sector, the CBN Governor, Olayemi Cardoso, has highlighted several emerging risks that require close attention. These include cyber threats, credit concentration pressures, and operational vulnerabilities. To address these concerns, the CBN is implementing a comprehensive risk-based supervision framework, alongside the ongoing transition to Basel III standards. This shift is expected to improve capital quality, strengthen resilience, and enhance liquidity monitoring across the banking sector.

The recapitalisation drive, which began in April 2024, is a crucial component of this strategy. Under this initiative, the minimum capital requirements have been significantly increased, with commercial banks now required to hold N500 billion, N200 billion, and N50 billion depending on their licence type. Merchant banks must maintain N50 billion, while non-interest banks need N20 billion (national) and N10 billion (regional). The deadline for compliance is 31 March 2026.

So far, 27 banks have raised capital through public offers and rights issues, with 16 already meeting or exceeding the new requirements. This progress underscores the depth and resilience of Nigeria’s banking sector.

Credit Risk Framework and Governance Enhancements

In addition to capital requirements, the CBN is redesigning the credit-risk framework to safeguard the estimated N4.14 trillion in new capital being raised. The bank is enforcing stronger governance, transparency, and accountability measures to protect these funds. A newly established Compliance Department is now fully operational, covering areas such as financial crime supervision, market conduct, enterprise security, corporate governance, and environmental, social, and governance (ESG) issues.

The CBN’s Credit Risk Management System has also been web-enabled, allowing banks to access its database for statutory returns and borrower checks. Integration with internal platforms is underway to improve efficiency and data accuracy.

Supporting Economic Growth and Stability

The CBN’s efforts are aligned with the government’s vision of achieving a $1 trillion GDP by 2030. A well-capitalised banking sector is seen as essential to realising this goal. Cardoso noted that without adequate capital, Nigerian banks may struggle to support the demands of a larger economy. The recapitalisation programme is designed to enable banks to extend more credit to small and medium enterprises (SMEs), invest in technology, and expand digital financial services, particularly in remote areas.

Operational discipline is another key focus area. The CBN has conducted an end-to-end review of the cash lifecycle, including production, transportation, distribution, and consumer access. Measures such as recalibrating cash-printing models, issuing ATM-to-card ratio guidelines, and strengthening approvals for ATM or branch closures have been introduced to ensure efficient operations.

Regulatory Reforms and Legal Framework

The Central Bank of Nigeria Act of 2007 mandates the CBN to promote financial system stability. This responsibility is fulfilled through reforms, improved access to finance, institutional capacity building, and enforcement of strong corporate governance practices. Analysts emphasize that a stable financial system is critical to maintaining public confidence, ensuring smooth monetary policy transmission, and preventing disruptions in the money supply.

Over the years, the CBN has implemented several reforms aimed at strengthening the banking industry and ensuring the effective functioning of the financial system. These efforts reflect a commitment to creating a robust and resilient financial ecosystem that can withstand both domestic and external shocks.

Conclusion

As Nigeria moves forward, the banking sector will play a pivotal role in driving economic growth and stability. With continued focus on capital adequacy, risk management, and regulatory oversight, the CBN is laying the foundation for a more secure and dynamic financial system. This strategic approach is not only essential for the banking sector but also for the broader economy, as it supports the nation’s vision of becoming a major global economic player.