The Central Bank of Nigeria (CBN) has signalled that some Nigerian banks may be required to raise additional capital following a new industry-wide stress test designed to evaluate lenders’ resilience to potential economic shocks.
In a directive issued to Deposit Money Banks, the apex bank instructed lenders to conduct a comprehensive stress-testing exercise beginning April 1, 2026 as part of efforts to strengthen financial system stability and ensure the banking sector remains adequately capitalised.
According to the regulator, banks that record a capital shortfall after the stress test will be required to raise fresh capital to bridge the gap within 18 months.
The development comes as banks approach the March 31 deadline set by the CBN for the completion of the ongoing banking sector recapitalisation programme aimed at strengthening balance sheets and expanding the industry’s capacity to support economic growth.
Under the new framework, banks are expected to assess the potential effects of adverse economic conditions on key prudential indicators such as Non-Performing Loans (NPLs), loan loss provisions, and their Capital Adequacy Ratio (CAR).
The CBN has directed lenders to submit board-approved reports detailing the results of the exercise by April 30, 2026. Each report must include the bank’s Pre-Stress CAR, Post-Stress CAR, and any capital shortfall identified during the analysis.
The regulator added that banks will be required to raise either 100 percent of the stressed capital shortfall identified by their internal analysis or 50 percent of the shortfall determined by the CBN’s independent review, whichever is higher.
Once the required capital level is determined, it will become the bank’s risk-based capital requirement until the next stress-testing cycle. The CBN said the next round of stress testing will take place six months after the completion of the capital raising process.
The exercise will examine banks’ exposure to a range of macroeconomic and operational risks, including potential declines in commodity prices, foreign exchange volatility, supply chain disruptions, weakening demand in key sectors, and governance-related challenges.
As part of the framework, lenders are required to apply the stress-testing model to all credit exposures, including both on-balance-sheet and off-balance-sheet facilities, as well as loans granted to directors and other insiders.
The CBN also instructed banks to treat insider-related exposures as severe stress scenarios, assuming that such loans could default and requiring full provisioning in the stress calculations.
Under the simulated stress scenario, banks must model a gradual deterioration in loan quality over a 12-month period, with credit exposures migrating through risk classification stages ranging from performing to watchlist, substandard, doubtful, and ultimately lost, in line with the Prudential Guidelines for Deposit Money Banks.
The regulator said the exercise is intended to ensure banks remain resilient and adequately prepared to absorb potential shocks arising from Nigeria’s evolving macroeconomic environment.
