The Digest:
The Central Bank of Nigeria (CBN) has directed all commercial banks to conduct stress tests effective April 1, 2026, to evaluate their resilience against extreme economic conditions. In a letter dated March 6, the apex bank said the exercise aligns with Sections 13 and 63 of BOFIA 2020, requiring banks to maintain adequate capital for risks. The stress test will simulate deterioration in asset quality, governance risk, and industry dynamics over 12 months, estimating impact on non-performing loans, provisions, and capital adequacy ratio. Banks must submit board-approved results by April 30. Critically, the CBN stated that banks shall be required to raise 100% of their reported stressed capital shortfall—or 50% of the shortfall computed from CBN analysis, whichever is higher, within 18 months. This level becomes the risk-based capital requirement until the next test cycle. The directive comes as banks near the March 31 recapitalisation deadline, with 30 banks already meeting requirements.
Key Points
- The stress test adds an extra layer of regulatory scrutiny beyond recapitalisation.
- The 100% shortfall requirement could force significant capital raises for weaker banks.
- Insider-related credits are to be treated under "severe stress" and fully provided for.
- The 18-month window allows time for capital raising but maintains pressure.
- The test will establish a new risk-based capital floor for each bank.
Sources: CBN Letter
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